WASHINGTON, March 26 (Reuters) - Banks should adopt compensation plans that discourage excessive risk-taking and place greater onus on senior managers for wrongdoing, the outgoing head of the New York Federal Reserve said on Monday. William Dudley, who plans to step down later this year, said regulators should encourage banks to overhaul their corporate cultures to reduce risk and bad behavior, even as regulators move to relax other rules introduced following the 2007-2009 financial crisis.
Some banks have already altered compensation plans to discourage risk-taking by minimizing the use of cash and deferred stock, with a greater emphasis on deferred long-term debt. Dudley said regulators could help more banks adopt that approach.
“Some banks have experimented with such compensation schemes, and I would encourage more to do so. But, this type of reform may also need a push from the regulatory side,” he said at an event in Washington.
“Another possible reform could involve putting a greater onus on senior management for the costs incurred from regulatory fines or other legal liabilities, rather than on shareholders alone,” he added.
Regulators in other markets including the United Kingdom and Hong Kong have introduced rules that would make senior bank managers more responsible for corporate malfeasance, in a bid to curtail risk-taking.
Reporting by Pete Schroeder Editing by Chizu Nomiyama