Regulators say banks on board with pay rules

WASHINGTON (Reuters) - U.S. regulators on Friday said they doubted financial companies would try to skirt new rules designed to crack down on risky pay practices, but lawmakers weren't so sure.

Regulators told a congressional committee that since the government is not seeking to put caps on pay and intends to apply new rules broadly across the industry, there is less incentive for companies and employees to try to skirt new rules.

"We don't sense the motivation to get around what we are trying to do," said Federal Reserve General Counsel Scott Alvarez.

The regulators' optimism was met with some skepticism from the House Financial Services Committee, with some members questioning how easy it will be to enforce rules and also curtail the appetite for big pay days.

"The more complex you make the regulations, the more wiggle room you are going to have and the more plans to circumvent or take away the intent," Republican Representative Bill Posey said.

Regulators emphasized that one reason for their expectation of cooperation is that the government is not seeking to put limits on pay but only to make sure employees aren't getting bonuses and other pay for taking risks that could sink the company.

That view was supported by most panel members, but Democratic Representative Al Green questioned its effectiveness, saying total pay has to be part of any crackdown.

"Systemic risk is not created by people who make minimum wage," he said.

Lawmakers and regulators have widely said that incentives for bonuses and other forms of pay pushed employees at financial services companies to take risks that not only endangered their institutions but the financial system as whole during the 2007-2009 financial crisis.

Banking regulators have been taking a variety of steps to crack down on pay practices and the Fed, with the support of other regulators, finalized incentive pay guidelines in June. The Fed is also separately focusing on the compensation policies at the largest banks.

The recently enacted Dodd-Frank financial law empowers regulators to write rules that further crack down on excessive pay. Also, the Federal Deposit Insurance Corp plans to formally propose making banks pay more for deposit insurance if they have risky pay schemes.

House Financial Services Chairman Barney Frank said he expects banks to support compensation policy changes so long as they are applied across the industry.

"My own view is that, frankly, if this was done uniformly many companies would welcome it," he said.

(Reporting by Dave Clarke; Editing by Steve Orlofsky)