A Better Model for Paying Bankers
Dodd-Frank provided a mandate for reform. Why hasn’t it happened?
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Officials at the Federal Reserve are telling banks to change their risk-taking culture or else. Their argument is familiar, but it’s being pressed with new force.
In 2010, the Dodd-Frank Act stressed the importance of changing the incentives under which bankers work. The standard deal on bankers’ pay provides for big bonuses in good times, with little downside when bets that produce short-term profits turn bad. This imbalance encourages excessive risk-taking and sometimes outright misconduct—especially if banks assume that taxpayers will rescue them when things go wrong.