Lessons Un-Learned From the Financial Crisis

7 Feb

Seems like there’s been alot of things going on lately that indicates few people – investors, bank executives, regulators – learned anything from the Financial Crisis.

The FDIC recently issued a rule on incentive pay at financial institutions.  I’m all for anything that seeks align pay incentives with risk taking, but I think this rule just doesn’t go far enough.  Emphasis mine:

Consistent with Dodd-Frank, the proposed rule does not apply to banks with total consolidated assets of less than $1 billion, and contains heightened standards for institutions with $50 billion or more in total consolidated assets. For these larger institutions, the rule requires that at least 50 percent of incentive-based payments be deferred for a minimum of three years for designated executives. Moreover, boards of directors of these larger institutions must identify employees who individually have the ability to expose the institution to substantial risk, and must determine that the incentive compensation for these employees appropriately balances risk and rewards according to enumerated standards.

Right.  I’m 100% sure BoD’s will aggressively and vigilantly piss off their biggest rainmaker traders and bankers.  I’m also 100% sure in their infinite wisdom (and along with countless compensation “consultants”) they’re going to accurately assess risk, let alone adjust compensation accordingly.  Come on, this is a joke.  The JP Morgan Board’s compensation committee is made up of CEO’s none of which ran/run financial services firms.  I doubt its much better anywhere else on The Street.

Instead of seriously reigning-in the short-term, risky practices that lead up to and caused the crisis the FDIC (and other regulators) are coming to the table with weak, spineless solutions.  I’m not one for government intervention in Financial (or any other) Markets unless it’s necessary, but the FDIC/etc were presented with ample opportunity and rationale to use this experience to make material changes that would significantly improve financial regulation and lower the probability of another (similar) crisis.

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