Large banks need to tie more employees’ compensation to the risks their decisions pose to their institutions, through such things as deferred pay, the Federal Reserve said in a report released on Wednesday.
The Fed said, however, that banks continue to make progress toward better aligning compensation and risk-taking.
Bank pay practices have been blamed by regulators and industry critics for spurring some of the excessive risk-taking that contributed to the 2007-2009 financial crisis.
Regulators have been pushing banks to take steps so that pay practices encourage decisions by executives that are to the long-term benefit of the bank, and not in search of short-term gains that boost bonuses.
In late 2009, the Fed began an effort to review bank pay practices.
The central bank said that, while progress has been made, banks need to do more.
One issue highlighted in the report is deferring employees’ pay so that bonuses and other forms of compensation can be reduced if decisions turn out worse for the bank over time.