Management compensation policies should be aligned with the longterm prudential interests of the institution, be tied to the risks being borne by the organization, provide appropriate incentives for safe and sound behavior, and avoid shortterm payments for transactions with long-term horizons.
3 Third, as the recent financial crisis has highlighted, risks to the financial system may arise not only in the banking sector, but also from financial firms that traditionally have been outside the regulatory and supervisory framework applied to banking organizations. Under federal law, all banking organizations – regardless of size – are subject to consolidated supervision for safety and soundness purposes.