Rather than setting pay levels, the government should require banks and other critical financial institutions to withhold a share of each senior manager's total pay for several years, a group of leading economists urge in a new book. The money would be forfeited if the company went bankrupt or had to be bailed out. The pay proposal is one of the main suggestions in 'The Squam Lake Report,' to be released on Wednesday by Princeton University Press. In a sign of the seriousness with which the recommendations are being examined, the Federal Reserve chairman, Ben S. Bernanke, will help introduce the book at a conference at Columbia University. The book, a consensus of 15 academics, including former advisers to Presidents Bill Clinton and George W. Bush, is coming out as Congress works toward completing the biggest changes in financial regulation since the Depression. About half of the group's eight core recommendations -- though not the pay proposal -- are strongly reflected in the two bills that are now being merged by a conference committee. But the scholars also say the legislation contains flaws that have resulted from political imperatives rather than sound economic thinking. The group first met in November 2008, as the financial crisis still raged, at a tranquil resort along Squam Lake in New Hampshire. The academics hashed out ideas for buffering the financial system from future crises, and developed those ideas over the next year-and-a-half, through e-mails, phone calls, Web postings and professional conferences. 'Our target audience was not other academics, but key decision-makers, not just in the U.S. but other countries as well,' said one of the economists, Matthew J. Slaughter, who teaches at the Tuck School of Business at Dartmouth with Kenneth R. French, who convened the group. That ambition is reflected even in the book's cover, whose design resembles that of the 9/11 Commission report, a surprise best seller of 2004. Jeremy C. Stein, a Harvard professor who is also part of the group, said that holding back a fraction of each year's bonus pool would make bank executives act more like taxpayers (who do not benefit when a huge bank is profitable, but bear the costs when one has to be bailed out) and less like shareholders (who often favor short-term risks in the hope of scoring a quick profit). The House and Senate bills would allow regulators to curb pay practices that make a bank unsound or take too many risks, but leaves the decision to regulators on how to do it. Another recommendation that has received limited attention in Washington involves a kind of debt instrument known as contingent convertible bonds, or CoCo bonds. Banks would be encouraged to issue such debt, which would automatically convert into equity in a crisis. Such bonds would speed up the recapitalization of an ailing bank, at no cost to taxpayers, leaving bondholders to bear the cost of failure. The House and Senate bills would allow, but not require, the Fed to impose a contingent capital requirement. The Squam Lake group also concluded that each country should have a single regulatory organization -- in the United States, ideally the Fed -- to oversee the health and stability of the financial system. The legislation in Congress entrusts that job to a new Financial Stability Oversight Council, led by the Treasury secretary, with the Fed chairman as only one of several voting members. Anil K Kashyap, of the Booth School of Business at the University of Chicago, said that relying on cooperation among regulators was a mistake. 'I doubt this will work, and it is very unlikely to produce much accountability,' he said. The group also called for better disclosure of the risks of financial products, particularly the mutual funds used in retirement accounts and 401(k)s. The legislation would create an entity to protect consumers from abusive financial products, but did not focus on retirement savings. One author, Ren? M. Stulz of Ohio State University, said there was 'no guarantee that a system that leaves that much discretion to regulators will successfully reduce systemic risk.' But over all, the Squam Lake authors said they believed that the legislation before Congress would do more good than harm. Several of their recommendations are in the bills: new tools to foresee and contain financial disruptions, higher capital requirements, mandatory 'living wills' for the biggest financial companies and greater transparency in the trading of credit-default swaps and other derivatives. Some marveled that 15 economists could agree on anything. The group includes Robert J. Shiller, the Yale professor who foretold the housing crisis; Frederic S. Mishkin, a former Fed governor; and Raghuram G. Rajan, a former chief economist of the International Monetary Fund. Martin N. Baily, who was an adviser to President Clinton, said the situation 'was such a disaster that we felt an obligation to reach some common ground.' Seth Ditchik, the book's editor, said it echoed 'An Economic Program for American Democracy,' a 1938 book by seven Harvard and Tufts economists. 'These are not the most radical suggestions or recommendations, but they are the most sensible,' he said. 'If 15 of the world's leading economists across the spectrum can agree that this is the right thing to do, then it's probably the right thing to do.' 