Administration Seeks Increase in Oversight of Executive Pay
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By STEPHEN LABATON
Published: March 21, 2009
WASHINGTON — The Obama administration will call for increased oversight of executive pay at all banks, Wall Street firms and possibly other
companies as part of a sweeping plan to overhaul financial regulation, government officials said.
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The outlines of the plan are expected to be unveiled this week in preparation for President Obama’s first foreign summit meeting in early April.
Officials said the proposal would seek a broad new role for the Federal Reserve to oversee large companies, including major hedge funds, whose
problems could pose risks to the entire financial system.
It will propose that many kinds of derivatives and other exotic financial instruments that contributed to the crisis be traded on exchanges or through
clearinghouses so they are more transparent and can be more tightly regulated. And to protect consumers, it will call for federal standards for
mortgage lenders beyond what the Federal Reserve adopted last year, as well as more aggressive enforcement of the mortgage rules.
The administration has been considering increased oversight of executive pay for some time, but the issue was heightened in recent days as public fury
over bonuses spilled into the regulatory effort.
The officials said that the administration was still debating the details of its plan, including how broadly it should be applied and how far it could
go beyond simple reporting requirements. Depending on the outcome of the discussions, the administration could seek to put the changes into effect
through regulations rather than through legislation.
One proposal could impose greater requirements on company boards to tie executive compensation more closely to corporate performance and to take other
steps to ensure that compensation was aligned with the financial interest of the company.
The new rules will cover all financial institutions, including those not now covered by any pay rules because they are not receiving federal bailout
money. Officials say the rules could also be applied more broadly to publicly traded companies, which already report about some executive pay
practices to the Securities and Exchange Commission.
During the presidential campaign, Mr. Obama repeatedly urged regulators to adopt new rules to give shareholders a greater voice in setting executive
pay for all public companies. And last month, as part of the stimulus package, Congress barred top executives at large banks getting rescue money from
receiving bonuses that exceeded one-third of their annual pay.
The regulatory plan is being put together ahead of the meeting of the Group of 20 industrialized and developing nations in London. The meeting, which
begins April 2, is expected to be dominated by the global financial crisis and discussions about better oversight of large financial companies, whose
problems could threaten to undermine international markets.
An important part of the plan still under debate is how to regulate the shadow banking system that Wall Street firms use to package and trade
mortgage-backed securities, the so-called toxic assets held by many banks and blamed for the credit crisis.
Officials said the plan would also call for increasing the levels of capital that financial institutions need to hold to absorb possible losses. In a
sign of the economic system’s fragility, officials said the administration would emphasize that those heightened standards should not be imposed now
because they could discourage more lending. Rather, they would be put in place after the economy began to rebound.
“The argument some are making is that they don’t want to be stepping on the gas pedal