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Europe crisis will have 'modest' effect on US

The US Federal Reserve plans to put pressure on banks to scrap pay packages that reward bankers for risky trades without censuring them for losses, its chairman Ben Bernanke has told a congressional hearing.

Answering questions from the House of Representatives Budget Committee the Fed chairman said it would be pushing banks to move as quickly as possible to restructure their compensation packages so that they do not encourage excessive risk-taking.

"We will be immediately working with the banks, and we have been working with banks already, to get them to modify their compensation practices," said Mr Bernanke.

"The structure of the compensation packages needs to change so that there's not an incentive to take excessive risks. Packages where the trader gets all the upside and none of the downside, that's the kind of thing we're trying to get rid of."

Stock markets rallied as the Fed chairman also told lawmakers that Europe's debt crisis would only have a "modest" impact on the US economy, which is beginning to see increased consumer spending.

"Our current most likely outlook is that the economy will continue to recover at a moderate pace... A double dip never can be entirely ruled out, of course, but right now our expectation is the economy will continue to grow at around a 3 to 4% pace this year," he said.

Mr Bernanke said he had been encouraged by the response European governments had taken to tackle the debt crisis and restore confidence and stability.

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