Several eurozone banks are falling short of the European Central Bank’s expectations by paying bonuses in cash, which fosters a short-sighted approach to management, the ECB’s top supervisor Andrea Enria has told a conference in Dublin.
Speaking at a Federation of International Banks in Ireland conference, Mr Enria, chair of the European Banking Authority, said rules put in place after the financial crisis a decade ago — such as bonus caps, clawback arrangements, and how much compensation is paid in cash — had supported regulators’ aims of ensuring banks align schemes with prudent risk-taking.
Due to the complexity of compensation schemes, however, banks can still increase incentives for risk-taking by tweaking small details, he said.
Quite a few banks still fall short of our expectations. Bonuses are, for instance, still paid out mostly in cash instead of stocks or other financial instruments
Some senior bankers here have blamed a strict cap on executive pay and ban on bonuses — introduced during Ireland’s banking crisis a decade ago — for their difficulty in retaining key staff.
Asked about the appropriateness of retaining such rules, Mr Enria said that as Dublin had to “intervene massively” in the sector and is still a majority shareholder in some banks, it is up to the Government to define when the legacy issues were sufficiently dealt with to relax bonus rules.
Finance Minister Paschal Donohoe has indicated that there is little appetite at the moment to change the rules.