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Fed to impose strict regulation on compensation for bankers

US bankers are to face strict regulation on compensation packages under plans announced by the Federal Reserve.

The huge bonuses on offer to senior bankers have been identified as one of the reasons behind the economic crisis and the Fed has now moved to stop banks repeating their previous errors.

If the Fed's proposals are adopted, 28 major banking organizations face in depth and ongoing reviews of their compensation policies, which will become part of the supervisory regime.

Reviews of the salary and bonus schemes at smaller banks will also take place.

Fed chairman Ben Bernanke said the proposals were designed to end the kind of incentives which encouraged bankers to take excessive risks.

"The Federal Reserve is working to ensure that compensation packages appropriately tie rewards to longer-term performance and do not create undue risk for the firm or the financial system," he added.

News of the proposed regulations came on the same day that Kenneth Feinberg, the special master for Troubled Asset Relief Program executive compensation, imposed pay restrictions on senior executives at the seven firms which received the most state aid.

Among Mr Feinberg's recommendations for the 25 best-paid employees at Citigroup, Bank of America, GMAC, AIG, Chrysler Financial, GM and Chrysler are a $500,000 salary cap and replacing cash bonuses with stock that must be held long term.

Written by Tony Aynsley