The Obama administration intends to seek new powers for the Securities and Exchange Commission to force financial firms to give shareholders votes on executive pay packages, people familiar with the matter told Bloomberg News. * * * The changes aim to ensure that even financial companies that free themselves of government stakes will be subject to universal guidelines aimed at reducing systemic risks, the news service reported.
Now we see that bank pay regulation is politically motivated populist-feeding, and not really about systemic risk. The systemic risk argument for regulation assumes that this risk is an externality not taken into account by banks’ owners. If the owners care about the risks their banks pose to the financial system enough to micromanage pay to reduce these risks, then why can’t we trust the shareholders to manage the banks in other ways to contain these risks? Conversely, if we need systemic risk regulation because we can’t trust the shareholders, then why give the shareholders the power to control pay?
Another thing: why should the SEC be the agency to dictate shareholder control over bank pay? Isn’t that agency supposed to be about disclosure?
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