Until 1970, the New York Stock Exchange, a private self-regulatory organization, required members to operate as partnerships. Peter J. Solomon, a former Lehman Brothers partner, testified before the FCIC that this profoundly affected the investment bank’s culture. Before the change, ... [t]hey were all on the hook together. “Since they were personally liable as partners, they took risk very seriously,” Solomon said. Brian Leach, formerly an executive at Morgan Stanley, described to FCIC staff Morgan Stanley’s compensation practices before it issued stock and became a public corporation: “When I first started at Morgan Stanley, it was a private company. When you’re a private company, you don’t get paid until you retire. I mean, you get a good, you know, year-to-year compensation.” But the big payout was “when you retire.”

When the investment banks went public in the 1980s and 1990s, the close relationship between bankers’ decisions and their compensation broke down. They were now trading with shareholders’ money. Talented traders and managers once tethered to their firms were now free agents who could play companies against each other for more money. To keep them from leaving, firms began providing aggressive incentives, often tied to the price of their shares and often with accelerated payouts. To keep up, commercial banks did the same.