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NY Fed Wants to Cancel Bank CEO's Belize Vacation

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DailyFeed

Hey, the New York Fed thinks it might be a good idea to rein in the "appetite for risk-taking" by financial institution CEO's. "Structuring CEO pay towards greater deferred compensation (longer vesting periods, escrow accounts and claw-back provisions) is an important step in that direction," they say.

But here's the problem. "On average, a bank CEO's wealth is about $287 million." Haha. These bank CEO's, their pay is beginning to get excessive! Anyway, the point is that, at that level of wealth, perhaps they're not really in it for the money? Which leaves... the risk, the thrill of the action.

Fair enough. But what to do to rein in the action bets? Glad you asked. The NY Fed suggests: Why not tie CEO compensation to long-term Credit Default Swap spreads on the institutions they run? The theory is that the market is able to formulate an opinion on excessive risk-taking by increasing or decreasing the institution's CDS spreads. Higher risk, higher debt costs. Lower risk, lower debt costs. I've seen worse ideas.

"Sorry dear, but our CDS spreads have blown out. We're going to have to cancel the Belize trip."
POSITION:  No positions in stocks mentioned.

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