Will "Executive Pay" be the Lever to Break-Up the Big Banks?

Responding to the growing furor over the paychecks of executives at companies that received billions of dollars in the government’s financial rescue, the Obama administration will order the companies that received the most aid to deeply slash the compensation to their highest paid executives, an official involved in the decision said on Wednesday. CNBC

How, if one was a member of the Obama administration, would you go about breaking up the Big Banks? Would you try a frontal assault, or, would you first try to scare the top opposing generals to desert?

The Big Guns at the top US financial firms have been fighting to keep their operations as free from regulation as possible, perhaps because they fear such regulation would hurt profits and, by extension, and far more importantly, I suspect, their pay. I don't doubt that increasing capital requirements and limiting the speculative activities of Big Finance would hurt profits.

Yet, thus far at least, the political will to take on Big Finance directly has only come from across the pond- from BoE Governor Mervyn King.

Perhaps the Obama team is using a flanking maneuver. While public support for a break-up of the Big Banks is not strong, support for restrictions on pay for top earners in firms that received public funds is quite strong. It's a much easier sell.

If the Big Guns in Big Finance wouldn't be able to take home their ever increasing slice of the pie, why would they stay and fight against regulation? If executive compensation is capped they would, assuming they are as competent as they assert, be far better of joining some hedge fund which won't fall under those compensation restrictions.

If this is the lever the Obama team aims to use, it would be a clever political move. Yet, I fear for the precedent. I'm not in favor of the state having such a say in the internal operations of a private sector firm (admittedly, I'm not in favor of private sector firms getting the kind of bail-outs Big Finance received either). Perhaps this is one of those times when a greater good will be accomplished by somewhat unsavory means. If so, I suspect we will pay a price for this down the road.