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Administration Seeks = Increase in=20 Oversight of Executive Pay

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By STEPHEN=20 LABATON

Published: March 21, 2009

WASHINGTON =97 The Obama administration will call for increased = oversight of executive=20 pay at all banks, Wall Street firms and possibly other companies as = part of=20 a sweeping plan to overhaul financial regulation, government officials = said.

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The outlines of the plan are expected to be unveiled this week in = preparation=20 for President=20 Obama=92s first foreign summit meeting in early April.

Officials said the proposal would seek a broad new role for the Federal=20 Reserve to oversee large companies, including major hedge funds, = whose=20 problems could pose risks to the entire financial system.

It will propose that many kinds of derivatives and other exotic = financial=20 instruments that contributed to the crisis be traded on exchanges or = through=20 clearinghouses so they are more transparent and can be more tightly = regulated.=20 And to protect consumers, it will call for federal standards for = mortgage=20 lenders beyond what the Federal Reserve adopted last year, as well as = more=20 aggressive enforcement of the mortgage rules.

The administration has been considering increased oversight of = executive pay=20 for some time, but the issue was heightened in recent days as public = fury over=20 bonuses spilled into the regulatory effort.

The officials said that the administration was still debating the = details of=20 its plan, including how broadly it should be applied and how far it = could go=20 beyond simple reporting requirements. Depending on the outcome of the=20 discussions, the administration could seek to put the changes into = effect=20 through regulations rather than through legislation.

One proposal could impose greater requirements on company boards to = tie=20 executive compensation more closely to corporate performance and to take = other=20 steps to ensure that compensation was aligned with the financial = interest of the=20 company.

The new rules will cover all financial institutions, including those = not now=20 covered by any pay rules because they are not receiving federal bailout = money.=20 Officials say the rules could also be applied more broadly to publicly = traded=20 companies, which already report about some executive pay practices to = the=20 Securities and Exchange Commission.

During the presidential campaign, Mr. Obama repeatedly urged = regulators to=20 adopt new rules to give shareholders a greater voice in setting = executive pay=20 for all public companies. And last month, as part of the stimulus=20 package, Congress barred top executives at large banks getting = rescue money=20 from receiving bonuses that exceeded one-third of their annual pay.

The regulatory plan is being put together ahead of the meeting of the = Group=20 of 20 industrialized and developing nations in London. The meeting, = which begins=20 April 2, is expected to be dominated by the global financial=20 crisis and discussions about better oversight of large financial = companies,=20 whose problems could threaten to undermine international markets.

An important part of the plan still under debate is how to regulate = the=20 shadow banking system that Wall Street firms use to package and trade=20 mortgage-backed securities, the so-called toxic assets held by many = banks and=20 blamed for the credit crisis.

Officials said the plan would also call for increasing the levels of = capital=20 that financial institutions need to hold to absorb possible losses. In a = sign of=20 the economic system=92s fragility, officials said the administration = would=20 emphasize that those heightened standards should not be imposed now = because they=20 could discourage more lending. Rather, they would be put in place after = the=20 economy began to rebound.

=93The argument some are making is that they don=92t want to be = stepping on the=20 gas pedal and the brake at the same time,=94 said Morris Goldstein, a = senior=20 fellow at the Peterson Institute for International Economics and a = former top=20 official at the International= =20 Monetary Fund.

Administration officials are also debating how tightly to supervise = hedge=20 funds.

A broad consensus has emerged among regulators and administration = officials=20 that hedge funds must be registered and more closely monitored, probably = by the=20 Securities and Exchange Commission. But officials have not decided how = much the=20 funds will have to disclose about their investments and trading = practices. The=20 officials spoke on condition of anonymity because the regulatory plan = was still=20 being formulated and they did not want to upstage Mr. Obama or Treasury=20 Secretary Timothy=20 F. Geithner, who will describe the plan when he appears before = Congress on=20 Thursday.

A central aspect of the plan, which has already been announced by the = administration, would give the government greater authority to take over = and=20 resolve problems at large troubled companies not now regulated by = Washington,=20 like insurance companies and hedge funds.

That proposal would, for instance, make it easier for the government = to=20 cancel bonus contracts like those given to executives at the American=20 International Group, which have stoked a political furor. Under the=20 proposal, the Treasury secretary would have the authority to seize and = wind down=20 a struggling institution after consulting with the president and upon = the=20 recommendation of two-thirds of the Federal Reserve board.

Long before he became Treasury secretary, Mr. Geithner sought broader = authority for the government to resolve problems at financial = institutions not=20 under bank regulators=92 supervision.

The government now has the power to take over only the banking unit = that=20 controls federally insured deposits of large troubled institutions, not = the=20 parent company =97 a limit that could pose problems if large financial=20 conglomerates like Citigroup=20 or Bank=20 of America continued to spiral downward.

In unveiling the regulatory plan, Mr. Obama would signal to Europe = that he=20 intended to crack down on the risk-taking and other free-wheeling = practices by=20 the financial industry that resulted in the global economic = meltdown.

France and Germany especially have suggested that the better response = is not=20 more government spending but tighter regulation.