I read Joe Nocera’s column and recent blog on Wall Street bonuses and quite honestly, I was distressed by his headline titles, “It’s not the bonuses, it’s the principal” and “Bankers gone Bonkers”. For me, it minimizes the severity of the crime. There’s an awful lot of whining going on about this issue, but so far, except for verbal “spankings” not much is being done to change it.
There is something truly unseemly about seeing Wall Street executives taking down millions after driving the economy over the cliff. Which is why President Obama called them on their behavior this week in a remarkable scolding.
Bonuses and dividends should not be allowed. The banks need to recapitalize. They need to retain earnings. When a bank makes a loan to a business, they often write capital requirements into their loan documentation. These covenants prohibit companies from distributing income, in the form of dividends or bonuses or salaries, when that income is NEEDED to sustain the business’s operations and protect the bank’s loan.
Well, the people of this country have LENT our tax dollars to these banks and investment companies. And we should restrict, as part of that loan agreement, the distribution of cash through bonuses and stock dividends, by these institutions.
I wrote an article on the industry wide violation of Regulation H which governs banks safe and sound lending practices in real estate loans. And in that article, I point out that almost every bank, and certainly all the big banks, violated that regulation to the point where they collapsed our nation’s economy. I state in that article the actions that could have been taken by the regulators that would have perhaps prevented the crisis we are in today.
The FDIC publishes a list of CEASE and DESIST orders that they impose on banks and banking executives. For the most part, these orders are based on the FDIC’s findings that the banks have participated in unsafe or unsound banking practices and violated laws and/or regulations that are alleged to have been committed by the Bank. http://www.fdic.gov/bank/individual/enforcement/neworders.html
These ORDERS include penalties and require the banks to comply with detailed affirmative actions. Readers can connect to the link above and see these orders in detail. Many of them contain provisions directed at restricting dividends, compensation and bonuses, and here are some quotes from the ORDERS:
- Restriction of the payment of monthly fees to directors until the Bank returns to profitability
- The Bank shall not pay cash dividends without the prior written consent of the Supervisory Authorities
- For the purposes of this paragraph, “compensation” refers to any and all salaries, bonuses, and other benefits of every kind and nature whatsoever, whether paid directly or indirectly.
- As of the effective date of this ORDER, the Bank shall not declare or pay any cash dividend without the prior written consent of the Regional Director and the Commissioner.
- As of the effective date of the ORDER, the Bank shall not pay any bonus or make any retention payments to any directors, officers or employees without the prior written consent of the Regional Director and the Commissioner.
What I cannot figure out is WHY the FDIC is not imposing these same restrictions on all the banks that violated safe and sound banking practices and Reg H by participating in the sub-prime mortgage market and WHY the press, the public and our leaders are not all over FDIC to implement this plan of action on behalf of the taxpayers.
A “spanking”??? The only punishment that will have meaning is one that will curtail the financial industries inherent greed. Will our regulators please take charge of this and issue cease and desist orders with regard to bonuses and dividends!!