* Fed meets bank CEOs to launch pay reviews
* Fed's Tarullo: big banks need to author own pay reforms
* Half-hour meeting with about 20 banks at New York Fed
* U.S. pay czar says reluctant to use claw-back powers
By Mark Felsenthal and Steve Eder
WASHINGTON/NEW YORK, Nov 2 (Reuters) - The U.S. Federal Reserve summoned chief executives from the United States' biggest banks on Monday to prod them toward reining in pay practices blamed for sparking the financial crisis.
In meetings across the country with the 28 largest U.S. banks, Fed officials laid out their expectations for bank-led changes to tailor compensation more closely to risk taking.
The U.S. central bank hopes to prevent the type of reckless behavior that led the U.S. financial system to the brink of collapse last year.
The Fed last month issued proposed guidelines on how the largest banks should reform their compensation practices, and Monday's encounters were meant to kick-start the process.
"We are not waiting to begin the process of gathering information about compensation practices," Fed Governor Daniel Tarullo said at a conference on executive pay. "Today, in discussions across the country, we are communicating our plans and expectations to these firms, with particular attention to beginning this information gathering."
After a series of multi-billion-dollar bank bailouts, public anger is running high in the United States at the stratospheric compensation some bankers get.
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Fed officials want banks to rely more heavily on deferred compensation, and bonuses awarded as stock, to discourage risks that could lead to short-term gains, but long-term pain.
LARGE FIRMS IN FOCUS
The guidelines the Fed has issued apply to all of the firms it regulates -- more than 5,000 bank holding companies and more than 800 smaller state-chartered banks.
However, Tarullo, who has helped lead the Fed's efforts, said pay at large firms warrants particular attention because flaws in compensation schemes could cause pain throughout the financial system, as the crisis demonstrated.
Each large bank will be expected to develop and present to the Fed a plan that identifies how it can bring its pay and bonus practices into line with the Fed's guidelines.
"We decided to place the burden on each of these (large banks) to develop a plan that would, with appropriate specificity, implement the principles we have identified into the firm's compensation practices and policies," he said.
The Fed's decision to call chief executives in for a meeting was meant to underscore the importance the central bank was attaching to the pay reform effort, analysts said.
"The Fed is trying to let institutions know that they are very serious about this and presumably the Fed is going to look for accountability at the CEO level," said Kevin Petrasic, a lawyer at Paul Hastings who advises financial services firms on regulation.
PAY CZAR MULLS CLAWING BACK PAY
About 20 bank chiefs met at the New York Federal Reserve Bank, sources familiar with the meeting said. Other banks met with representatives of regional Fed banks.
The New York Fed told the bank executives it is serious about its compensation rules and wants banks to begin incorporating them in year-end plans, sources familiar with a meeting there said.
New York Fed President William Dudley told executives they must work out how to pay risk-takers, while being disciplined on compensation, a source said.
Bank chief executives, who were on hand for the half-hour meeting with members of their compensation committees, had a chance to ask questions or offer comments. Morgan Stanley CEO John Mack stressed the need for global coordination among regulators on pay issues.
"Everyone agreed and Dudley said 'that's a good point and we will focus on it,'" a source said.
Separately, the Obama administration's pay czar, Kenneth Feinberg, said he will determine "in the near future" how he will use his power to claw back compensation paid out at companies that have taken taxpayer rescue money. However, he said he is not currently in negotiations to do so.
"I think that exercise of discretion should be very, very narrow," he said.
(Additional reporting by Karey Wutkowski in Washington and Kristina Cooke in New York; writing by Mark Felsenthal)