To Spur Bank Execs to Act, Mess With Their Pay

Compensation limits have prompted swift TARP repayment
By Nick McMaster,  Newser Staff
Posted Dec 18, 2009 5:15 PM CST
To Spur Bank Execs to Act, Mess With Their Pay
In this Arpil 16, 2007 file photo, the company logo of a Wells Fargo Bank is seen in Sunnyvale, Calif.   (AP Photo/Paul Sakuma, file)

A common complaint about the TARP bailouts was that by injecting capital and making the financial environment more friendly, the government wasn't doing enough to push the banks into real reform. Why wouldn't the banks simply live off TARP cash as long as they could? Yet those concerns were unfounded, writes Daniel Gross, because it turned out the government did have an effective motivator: limits on compensation.

The investment banks that could repay their TARP loans did so in June, just when Ken Feinberg was appointed pay czar, Gross notes. In October, Feinberg issued his pay restrictions for TARP recipients, and this month, Citigroup, Bank of America, and Wells Fargo have paid back a total of $90 million to the government. Taxpayers are still owed millions—but "the threat of the government having limiting bankers' compensation spurred the banks to get their houses in order," Gross writes for Newsweek.
(More compensation stories.)

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