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ECB probes bankers' bonuses with eye on preserving capital base

Thursday, January 29, 2015 - 20:37

The European Central Bank will probe how lenders reward staff for performance to ensure that pay policies are in line with capital goals.

[FRANKFURT] The European Central Bank will probe how lenders reward staff for performance to ensure that pay policies are in line with capital goals.

"The ECB has notified banks that it will thoroughly examine their policy on variable remuneration," according to a Jan 29 statement published in Frankfurt. "During this assessment, the ECB will take the banks' capital situation into account, as variable remuneration should be consistent with a bank's ability to maintain a sound capital base."

The announcement is the first time the ECB has weighed in on remuneration since it assumed euro-area bank oversight powers in November, including direct supervision of the bloc's 123 largest banking groups.

ECB Supervisory Board Chair Daniele Nouy said in a Jan 28 interview that the central bank hasn't yet taking a stance on bankers' pay.

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"For the time being the philosophy is to stay largely unchanged compared with what national supervisors were doing before," she said.

The move is the latest European Union assault on banker bonuses, as lenders adjust to EU regulations that took effect on Jan 1 banning awards of more than twice fixed pay. European Parliament lawmakers called for those rules to tackle what they called a gambling culture blamed for triggering the 2008 financial crisis.

EBA Guidelines The European Banking Authority planned to publish new guidelines on bankers' pay by the end of 2014, incorporating the findings of a probe into discretionary remuneration, said a person with knowledge of the matter, asking not to be identified because the regulator's plans aren't public. The rules will be delayed until at least next month, the person said.

The London-based EBA moved late last year to close a loophole in EU law that banks used to sidestep the bonus limit with so-called role-based allowances.

The ECB linked its bonus probe with banks' capital levels, which determine their ability to absorb losses while staying in business.

Regulators have more than tripled minimum requirements for core capital since the 2008 financial crisis in a bid to bolster the resilience of the financial system. Core capital includes retained earnings and the lender's issuance of ordinary shares.

Some euro area banks, including Deutsche Bank AG, BNP Paribas SA, Banco Bilbao Vizcaya Argentaria SA, and Banco Santander SA have been placed on an international list of too- big-to-fail banks that should face even tougher rules.


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