Serious concern at banks’ lack of reform

THE Central Bank has expressed serious concern at the serious lack of reform it has found in the pay and incentive structures used to reward senior employees in the country’s banks.

In a review published yesterday, it found just one bank had made any real progress in the area. It did not name the bank.

In 2007, one bank chief executive earned over €4m in pay and bonuses.

The current review looked at how the sector had changed the pay and bonuses of executives operating at a senior level within the main Irish banks.

It found that just one of the Irish banks had led the way on reforming pay policies within the sector.

“While the majority of banks have started to reform their remuneration policies and practices regarding senior executives, the balance of our findings is discouraging,” said Jonathan McMahon, head of financial institutions supervision at the Central Bank. “If a bank is not employing the right financial incentives, it is not managing its risks — it’s as simple as that.”

ISME, the Irish Small & Medium Enterprises Association, reacted furiously to the lack of reform highlighted in the findings.

It called on the Government “to give more power to the Central Bank to impose stricter conditions on bankers’ wages”.

ISME chief executive Mark Fielding said the report “confirmed that Irish banks have continued their reckless ways in spite of the fact that it was a combination of these practices which has brought the economy to its knees”.

He condemned the “arrogance of these people” which, he said, “knows no bounds”.

“They seem impervious to the plight of the country and their own role in the debacle,” he said.

The Minister for Finance should, he suggested, carpet the banks’ chairmen and demand instant compliance with existing regulatory practices.

Conducted in September and October, the review concluded there was little to suggest that banks had “self-consciously” put in place pay and bonuses structures that did not continue to reward those who engage in reckless lending practices.

The report also found the majority of banks had done very little to prepare for the impending European requirements and guidance on remuneration, which will become effective in Ireland on January 1, 2011.