US Fed moves to cap bankers compensation, bonus

The US Federal Reserve is planning to review the compensation practices at the nation's banks, in order to cap the pay of the bank officers, as it believes that the prevailing practices encourage bank employees to take huge risk that may have led to the collapse of the system last year.

There is widespread belief among senior government officials and market experts that the short-term performance-related pay and bonus lure bankers to take exorbitant risk.

Many European nations, mainly Germany and France are clamouring on to put curbs on bankers' pay and bonuses, which they say lure bankers into excessive risk-taking which caused the global economic crisis.

However, the issue still remains a bone of content between the European nations and the US.

Early this month, British prime minister Gordon Brown also said that Britain will push for tough global action to crack down on excessive bonuses for bankers (See: Brown seeks global action on bankers' bonuses).

Still, it was unclear whether the Fed's proposal would result in any major changes in the American financial sector. Those who oppose the Federal Reserve's move believe that a cap on pay will have a negative impact on the industry.