Coupled with the pay czar Ken Feinberg's capping executive pay at TARP banks at $500,000 the Fed has weighed in with its own pay plans. The Fed says that it is within its rule-making authority to review and regulate pay packages that threaten the solvency of those it regulates. Although many will say that the Fed is overstepping its authority, in the past the courts have granted it wide latitude in its rule making. This is not unprecedented. When I was at the National Credit Union Administration, we forced some credit unions that based their incentive pay on growth in size to alter those incentives. Naturally, such a package would encourage growth in size which may also encourage increased risk taking. Thus, so long as the Fed adheres to evaluating plans and their impact on risk, I have no problem with what the Fed is doing. Note I did not say that the Fed should determine the salaries. I did not say that the Fed should cap salaries. Those are beyond the purview of the Fed because the Fed does not have a clue as to what those salaries should be. However, I actually believe that all of this is just the Fed showboating. Bernanke has been nominated but will not be confirmed until January. Research has shown that the Fed generally accommodates the administration until the chairman is reconfirmed by the Senate. Since the president hates profits (just listen to his words) and thinks executives are overpaid (again listen to his words) then the Bernanke is going to do all that he can to show he is one of the team - until he is confirmed. Then I expect him to do what all Fed chairmen have done under the same circumstances. That is grow a set, become independent, do what really is best for the economy and hope for a one term president.
Harold A. Black is professor emeritus in the Department of Finance, University of Tennessee, Knoxville having retired after 24 years of service. He has served on the faculties of American University, Howard University, the University of North Carolina - Chapel Hill and the University of Florida. His government service includes the Office of the Comptroller of the Currency and as a Board Member of the National Credit Union Administration. He also has served on the boards of directors Home Savings of America and its parent company, H. F. Ahmanson & Co., Irwindale, California prior to its merger with Washington Mutual Savings Bank, on the board of New Century Financial Corporation, Irvine, California, then the nation’s largest real estate investment trust and as director and later chairman of the Nashville Branch of the Federal Reserve Bank of Atlanta. He writes an occasional article for the Knoxville News-Sentinel at http://www.knoxnews.com/staff/dr-harold-black/. His web page is haroldablackphd.com