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Bernanke: Banks Must Be Smarter About Executive Pay

The head of the U.S. central bank says banks must be smarter about the ways they pay their executives, and government must find better ways to cope with the failure of large financial firms.

Federal Reserve Chairman Ben Bernanke spoke Friday to a group of community bankers in Phoenix in the western U.S. state of Arizona.

He said "poorly designed" compensation policies can create the wrong incentives and jeopardize the bank's health.  Bernanke urged bankers to find ways to align executive pay with the long-term interests of the bank. 

Bernanke spoke after $165 million in bonus payments to executives of the troubled AIG insurance company - which has been propped up with billions of dollars in taxpayers' money -  caused a huge political upheaval.

He also said the government must find a safer way to shut down large financial firms outside the banking sector without disrupting the entire financial system.   

Some information for this report was provided by AP and Reuters

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