A report from the Joint Oireachtas Committee on European Scrutiny has backed new EU plans to strengthen the regulation of financial services across Europe.
However, it raised concerns about the requirement for banks to retain a certain amount of capital on their books to safeguard against the fall in the value of banks' assets, saying it could have an impact on their ability to lend to smaller businesses.
"We are constantly hearing that business and crying out for credit. Therefore, there needs to be a balance struck between the goals of maintaining financial stability by making sure institutions are well funded and capitalised while at the same time ensuring banks meet the needs of the real economy and support lending to households and businesses," committee chairman John Perry said.
"For this reason we are urging the regulatory bodies in the EU to make it a priority that this balance be actively monitored and managed over the coming years."
The proposals include the regulation of bonus payments, compelling banks to adopt what are desccribed as "more prudent" policies that do not encourage or reward excessive risk taking. Under the regulations, at least half of the payment will be comprised of shares, with 40 per cent deferred over a three-year period.
"Following a considered analysis of this issue, the Committee fully supports this element of the proposal which will force banks to impose more responsible policies when paying out bonuses. We also welcome the fact that under these new rules, supervisory oversight of these institutions will also include the power to sanction those credit institutions who fail to implement policies consistent with sound risk management," Mr Perry said.
The report will be sent to Minister for Finance Brian Lenihan. The directive is expected to be adopted by December.
