How Will Financial Industry Makeover Affect ETFs?

May 13th at 11:00am by Tom Lydon

images33 The financial industry is facing a huge overhaul, and it does not only affect the big banks that received bailout funds; shares and related exchange traded funds (ETFs) could be affected, as well.The Obama administration is looking deeper into how the financial industry compensates its employees, and they are going to face big changes in pay. Jeremy Hobson for Marketplace reports that the the Federal Reserve and the Securities and Exchange Commission (SEC) are in charge of this, and they can observe and research the pay that employees of banks receive. They also will have the right to put caps on the amount of money borrowed to make investments. And it could wind up applying to all financial institutions – whether they accepted TARP money or not.

Of the 300-plus banks that were going to participate in the federal funding program, many have withdrawn because of the strict requirements and limits, reports Stephen Labaton for The New York Times. The program would reopen the application window for banks with assets below $500 million, using the proceeds from repayments that the Treasury is anticipating from big banks.

Louis Story and Eric Dash for The New York Times report that federal policymakers have been creating ways to ensure that pay is more closely linked to performance. The newer rules would even apply to those banks, hedge funds and private equity firms that did not receive TARP funding.

  • Regional Bank HOLDRs (RKH): down 10.6% year-to-date

  • iShares Dow Jones US Financial Sector (IYF): down 4.1% year-to-date

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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