NEW YORK (CNNMoney.com) -- Banks are using tax-free benefits from life insurance policies they hold for their employees to pay executive bonuses, deferred pay and pensions, according to a published report Wednesday.

Major financial institutions -- including Bank of America (BAC, Fortune 500), J.P. Morgan Chase (JPM, Fortune 500), Wachovia and its parent, Wells Fargo (WFC, Fortune 500) -- are taking increasing amounts of life insurance policies against their employees, and naming the company as the beneficiary, the Wall Street Journal reported.

The company receives a tax-free benefit when the employee dies, whether that employee is still working at the company or not, the report said.

While banks are not alone in the practice, the amount of life insurance that banks in particular are taking out for their employees has been on the rise, the paper reported.

Bank of America and Wells Fargo confirmed to CNN that they have this type of insurance in place.

"It is a legitimate business practice used by many companies," said Bank of America in a written statement. "Like many companies Bank of America uses this insurance to help defray the cost of employee benefits."

A law passed in August 2006 prohibits banks from taking out life insurance policies against all but the top third of their earners, and those employees must provide consent to participate in the program, according to the story.

But the Journal said the regulation does not apply to the policies taken out against millions of current and former employees prior to 2006.

The issue of executive pay, and in particular bonuses, has been under public scrutiny in recent months as the government stepped in to bail out the nation's biggest banks with taxpayer dollars.