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September 21, 2009

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US Fed plans pay rules for lenders

THE United States Federal Reserve plans new rules on bank pay to curb the type of excessive risk-taking that sparked the global financial crisis and triggered international demands for action.

Public outrage at the stratospheric compensation of some bankers has boiled up to the level of the Group of 20 nations, whose leaders meet this week in Pittsburgh.

The United States, under pressure to act on pay at the G20 from France and Germany, has already said it aims to curb the excessive risk-taking at the root of the crisis.

A Fed source said on Friday that guidelines would be proposed in the next few weeks and would apply to any employee able to take risks that could imperil an institution, not just the executives who have been the main target of popular ire.

The rules will be aimed at all firms the Fed regulates and be enforceable under its existing powers, said the source, who requested anonymity. The Fed oversees more than 5,000 bank holding companies and over 800 smaller state-chartered banks.

Massive losses inflicted by risky subprime mortgage bets destroyed some of the oldest names in US finance and intensified a recession that has cost millions of jobs.

The Financial Stability Board, which answers to the G20, has said that poorly capitalized banks should not be allowed to pay large bonuses.

Industry officials said many financial firms had already reined in pay practices and warned a heavy-handed approach could be harmful.


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