Policies that set the pay for tens of thousands of bank employees nationwide would require approval from the Federal Reserve as part of a far-reaching proposal to rein in risk-taking at financial institutions.
The Fed's plan would, for the first time, inject government regulators deep into compensation decisions traditionally reserved for the banks' corporate boards and executives.
Under the proposal, the Fed could reject any compensation policies it believes encourage bank employees -- from chief executives, to traders, to loan officers -- to take too much risk.
Bureaucrats wouldn't set the pay of individuals, but would review and, if necessary, amend each bank's salary and bonus policies to make sure they don't create harmful incentives.
There are very few things more dangerous than the power that is being consolidated into the hands of the Federal Reserve. Right now, here are the proposals being floated that would ultimately give even more power to the Federal Reserve. First, the Federal Reserve may soon have regulatory power over all financial services companies rather than simply banks. The president wants to give the Federal Reserve the power to be a "systemic risk regulator". Now, they may also have power to regulate executive pay among banks. This is above and beyond its ability to create money, manipulate interest rates, and buying and selling trillions of dollars worth of securities.
It's hard to put into words how bad an idea this latest proposal is. One of the most important jobs of policy making is to manage the power of any given entity. It's vital that no entity become too powerful. Too much power always leads to all sorts of bad problems. At this point, simply creating money and manipulating interest rates gives the Federal Reserve too much power. As such, policy makers should be working on ways to limit its power. Instead, policy makers are showering the Federal Reserve with even more power. That's just a recipe for disaster.