Wednesday, 03 February 2010

As 2009 financial results roll in, bank bonuses are in the headlines.  Who gets those huge bonuses?

It"s probably not the people you and I deal with at the bank.  You may think of a "banker" as the person who helps you open an account and fill out loan paperwork.  These are not the bankers earning huge bonuses.  Same goes for customer service representatives, tellers, and most others.

The bankers earning huge bonuses run in different circles.  They"re most likely involved with investment banking.  You"ll see terms like "derivatives", "mortgage securities", "trading", and "underwriting" when you dig into the details on big bank bonuses.

These people invest the bank"s money, and may handle (and generate or lose) billions of dollars.  Investment banking activities might help the bank pay you interest on your deposits, but it"s not old-fashioned low-risk banking.

Some lawmakers want to limit this activity.  Proposals such as the Volcker Rule would restrict bank activity in ways similar to the (now repealed) Glass-Steagall Act.  Their goal is to reduce the amount of risk taken with FDIC insured funds and by banks that are too big to fail.

Further reading:

How FDIC Insurance Works

Who Gets Bank Bonuses? originally appeared on About.com Banking / Loans on Thursday, February 4th, 2010 at 07:44:18.

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