By Eleanor Bloxham, contributor
FORTUNE — What would happen to you if you made an $8.5 billion “mistake” or 
contributed to one at your job?
Bank of America’s (BAC) recently proposed $8.5 billion settlement with investors in its mortgage-backed securities certainly amounts to a decent chunk of change. Even so, some may argue it’s rather small, given the damage that executives caused by not accurately disclosing the contents of the securities they sold.
But this $8.5 billion settlement — in real cash, not just paper accounting losses — brings some very large questions to the fore. What about all the executives who made bonuses based on the sale of those securities? And what about the executives who conducted the due diligence on Bank of America’s purchase of Countrywide, which led them to take on this multi-billion dollar headache?
Should those executives have received the pay days and bonuses they received?
The Dodd-Frank Act requires so-called clawbacks for accounting restatements. Clawbacks force executives to return bonus monies if they were based on false financial statements and that accounting has to be restated later on.
But the financials aren’t going to be restated in this case. And since this settlement does not involve a restatement, according to Bank of American spokesperson Jerry Dubrowski, no prior bonuses will be affected. Whether current executives will have to pay this year for the sins of the past “is too early to say,” Dubrowski says.
So, what about these large “oops” moments? The ones that take several years to materialize? Is there no accountability for these mistakes? Just take the money and run?
Shouldn’t those responsible for the losses be the ones to take a hit to their full bonus payments?
Clearly, they should, and that’s why pay rules currently being considered and discussed by multiple bank regulators are so important.
At the very least, the new proposals should require banks to do the following:
- Measure the risks of different products — and share that information with a bank’s board so it can assess the riskiness of different business lines, and
- Implement bonus deferrals — so executives have to wait to be paid the full amount of their bonuses. Bonus deferrals help ensure that pay is made on an accurate performance assessment and that there aren’t any billion dollar “oops” moments lurking in the background. It’s not like major settlements and penalties in banking are such a rarity these days.
You wouldn’t expect to keep huge bonuses in the land of billion dollar errors – or would you? Let’s hope some common sense prevails.
Eleanor Bloxham is CEO of The Value Alliance and Corporate Governance Alliance (http://thevaluealliance.com), a board advisory firm.