President Obama is aiming to water down Democratic proposals on pay caps for banking executives because he fears a "brain drain" on Wall Street.
In a move that has angered leaders of his own party, the President has indicated his concern that new caps on compensation — inserted into his $787 billion stimulus Bill, which he signs into law today - are too draconian and could limit banks' co-operation with his plan to stabilise the stricken financial sector.
This month Mr Obama issued guidelines for the limits: in essence a $500,000 executive pay cap for companies that receive government money. Under the guidelines, restrictions would only apply to banks that receive "exceptional assistance".
The restrictions in the Bill are much tighter, imposing limits on all banks that receive money. The stimulus package also calls for a review of past compensation, raising the prospect of executives having to pay back previous bonuses, and will place pay caps on a much broader array of employees.
The President's stand comes amid increasing clamour over executive payments. Last week Democrats on Capitol Hill reacted with disbelief when it emerged that Merrill Lynch paid bonuses of more than $1 million each to 696 employees days before Bank of America bought it - with the help of $20 billion in taxpayers' money.
At the heart of the dispute in the Democrats' ranks is Timothy Geith-ner, Mr Obama's Treasury Secretary, who appears to have won the argument inside the White House to water down proposed limits on executive pay. The President's political strategists did not want any modifications to the limits because it is so popular among an electorate disgusted with Wall Street excess, but Mr Obama has sided with Mr Geithner.
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