It's time for two-tier banking

By Money Matters Editors

U.S. Sen. Banking Committee Chairman Chris Dodd’s plan to rein-in bank executive compensation and bonuses is barely a week old and already it’s being called ineffectual.

“For the most part it’s pretty hollow, a toothless tiger,” said Paul Dorf, managing director of Compensation Resources Inc., a pay consultant based in Upper Saddle River, New Jersey, told Bloomberg News Tuesday. He added that the legislation needs more penalties if the rules aren’t followed.

Perhaps the problem is not so much Sen. Dodd’s revision but the U.S. government’s philosophical stance toward banking. The government wants to weed-out bank and financial institution practices that create incentives for risky/reckless practices that brought the financial system close to a collapse a year ago.