Capital Markets - News and analysis

FT: Three steps to a safer financial system, by Philip Purcell, Dec. 14, 2009

"The 12 per cent tangible equity requirement should apply to all financial institutions that have the implied federal guarantee, whether they are banks, brokers, insurance companies or government-sponsored entities. Any institution that does not want to be too big to fail can shrink through spin-offs and be eligible for the lower leverage ratio.

Second, regulators and boards should put in place compensation policies that strengthen capital and discourage reckless risk-taking. The recent efforts of President Barack Obama’s pay tsar, Kenneth Feinberg, have provoked a fair amount of consternation. One problem is the lack of any standard. How do you decide if a given amount of pay is too much?"

"Third, boards must take responsibility for viewing compensation in the context of risk management. As a first step, compensation committees and risk-management committees should be merged."

Source: Excerpt from article linked to above