ECB to launch examination of banking bonus payments

The European Central Bank has signalled a tougher approach on bankers’ pay, announcing that it will launch an examination of bonus payments and share options made by lenders in the region. The ECB, which took the reins for supervising the euro zone’s largest lenders last November, says it has notified banks that it will “thoroughly examine” their policies on variable pay, such as bonuses and share options.

It said it would take banks’ capital situation into account when examining pay, saying remuneration “should be consistent with a bank’s ability to maintain a sound capital base”. It expects the review to take place over the course of 2015.

The move to assess variable pay across euro zone banks, to be conducted by the ECB’s supervisory wing known as the single supervisory mechanism, comes amid wider moves by other regulators in the wake of the global financial crisis.

The European Banking Authority, which tries to harmonise how national supervisors across the EU implement directives from Brussels, is putting out its own proposals on the matter following its next board meeting at the end of February.

The EBA and Britain are already set to clash over so-called allowances. Under EBA rules, which are being contested by British chancellor George Osborne, bank bonuses should be no more than 100 per cent of salary, or 200 per cent with shareholder approval. The EBA has said that role-based allowances, which UK banks have used as a way to supplement salary, are a form of bonus.

On capital standards, the ECB said it would distinguish between three categories of bank: lenders that had passed last year’s ECB health check of the region’s banking system and had already met capital standards that will be introduced in 2019; lenders that passed the health check but were yet to meet the 2019 standards; and lenders that did not hold enough capital to pass the ECB’s assessment.

Twenty-five banks of the 130 that took part failed the ECB’s health check, known as the comprehensive assessment, which uncovered a capital shortfall of €24.6 billion. Nine were Italian lenders. However, many of the 25 lenders have raised capital since the December 2013 cut-off date used by the assessment. The ECB said banks that fell into the last category should “in principle, not distribute any dividends”.

The supervisor called on banks to adopt a “conservative policy” when distributing dividends that took into account “challenging” economic and financial conditions. – Copyright The Financial Times Limited 2015