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Bernanke: All Banks Should Review Comp Policies

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In a move that could affect insurers that are also bank holding companies, the Federal Reserve is asking all banking organizations to take a close look at how they pay executives.

Federal Reserve Board Chairman Ben Bernanke talked about executive compensation reviews and other topics today during an address at an economic conference in Chatham, Mass., that was organized by the Federal Reserve Bank of Boston.

Bernanke repeated earlier calls to create a new system, similar to the Federal Deposit Insurance Corp., that would handle problems at large, failing, systemically important financial institutions, and he talked about the need to create a council of regulators to keep track of problems that could shake the financial system.

Bernanke also drew attention to regulations recently proposed by the Fed that would require all banking organizations to review their compensation practices.

Banks should ensure that compensation practices “do not encourage excessive risk-taking, are subject to effective controls and risk management, and are supported by strong corporate governance including board-level oversight,” Bernanke said, according to a written version of his remarks released by the Fed.

During the recent financial crisis, flawed compensation practices contributed to the problems, Bernanke said.

“Compensation plans that encourage, even inadvertently, excessive risk-taking can pose a threat to safety and soundness,” Bernanke said.