Thursday, April 14, 2011

New proposed rule on perverse incentives

Federal Register today has a new Proposed Rule on "Incentive-Based Compensation Arrangements." It's a joint publication from the assembled banking and lending regulators.

I thought at first this might be a second try at interpreting the Dodd-Frank Act on pay for loan salespeople -- the subject of the allegedly dreadful Loan Originator Compensation Rule, which was set to take effect April 1 until a court order backed down the regulators. That one was supposed to discourage lenders and mortgage brokers from paying their salespeople in ways that could be hidden from the customer, and especially to keep the sellers from getting extra pay for talking customers into higher interest rates.

In fact, though, today's item looks like something different: a rule following from Dodd-Frank to discourage or stop lending institutions from paying bonuses to staff members for putting their own institutions at extra risk.

Kind of mindblowing, of course, that either one of these rules becomes necessary.

Speaking of which, about the regulators' enforcement orders issued yesterday on foreclosure 'servicing' (background documents and OCC actions here; some of the same, plus OTS actions, here) -- the SF Chron's Carolyn Said picks up the best quote yet on lax regulation, from Rev. Lucy Kolin of the PICO National Network: "Judges don't tell burglars to go design their own plan to stop breaking into people's homes and report back in 30 days."

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