Hoeing: Too-Big-to-Fail May Lead to US Bank Pay Rules

U.S. lawmakers may follow their European counterparts and regulate bankers’ pay if reforms aimed at ending government bailouts for lenders stall, Federal Deposit Insurance Corporation Vice Chairman Thomas Hoenig said.

Regulatory focus on bankers’ pay “will become more of an issue in the U.S. if we don’t solve the too-big-to-fail problem,” Hoenig said in an interview in Amsterdam today. “If we focus on that and get that solved, then the remuneration issue will become less significant and we’ll just see how that plays.”

U.S. lawmakers have so far avoided imposing limits on bankers’ pay, while regulators in the European Union this year cracked down on discretionary payments, known as allowances, which were used to sidestep rules banning bonuses that exceed fixed salary.

“I think it could change — there is some legislation where compensation is an area where there could be a focus, compensation methods and so forth,” Hoenig said. “The reason there’s a little recalcitrance is it’s so unlike the U.S., where you think of markets and if you’re successful then you get rewarded.”

Regulators on the Financial Stability Board last month proposed that the world’s largest banks hold buffers of loss-absorbing liabilities to be written down in a crisis, forcing losses on to bank creditors rather than relying on government bailouts to avoid economic catastrophe. Final rules on the so-called TLAC measures are due next year.

Restrictions on U.S. banker pay may “catch if the reform doesn’t proceed,” Hoenig said. “Americans intuitively think markets are good if they’re symmetric. If we bring that balance back, they don’t care about the pay so much.”

To contact the reporter on this story: Ben Moshinsky in Amsterdam at bmoshinsky@bloomberg.net

To contact the editors responsible for this story: Patrick Henry at phenry8@bloomberg.net Zoe Schneeweiss

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