Unintended Consequences of Demonizing Banks

Looks like the efforts by Democrats to demonize the banks and limit executive pay is having unintended consequences.

Citigroup Inc.,Bank of America Corp. and smaller banks struggling to attract talent and regain ground on stronger peers may face a new obstacle resulting from the global push to rein in executive pay.

Group of 20 standards barring bonus guarantees for more than one year and requiring deferred pay for top executives would take recruitment tools away from banks already burdened by diminished share prices and damaged reputations, some recruiters said. The plan adopted at last week’s G-20 summit may benefit Goldman Sachs Group Inc., JPMorgan Chase & Co. and Morgan Stanley, which have been quicker to repay government aid.

“Limiting guarantees to one year could hurt banks like Citigroup and Bank of America by putting them at another disadvantage in hiring,” said Colleen Westbrook, a partner with Morrison Cohen LLP in New York and a former counsel at the Federal Reserve Bank of New York.

The reality is that banking is a competitive business. Being able to attract, develop and retain talent is a key element to being successful. Talented employees are going to move to where their income is maximized. It just stands to reason that when there are pay caps put on some of those banks, the talent drain will be noticeable.

Of course, the left will see this as justification to cap all pay levels. All that will do is drive the top talent overseas to uncapped countries and damage the U.S. banking system even further.

This administration is slowly turning the U.S. banking industry into a government bureau office.