The European Central Bank will scrutinize banker bonuses after finding that compensation structures at many lenders don’t take sufficient account of risk.
(Bloomberg) — The European Central Bank will scrutinize banker bonuses after finding that compensation structures at many lenders don’t take sufficient account of risk.
The indicators used by banks to set bonuses aren’t always clear and “in many instances” rely too much on financial performance instead of risk, controls or cultural and behavioral aspects, the ECB said in a newsletter article on Wednesday.
European lawmakers and regulators have pushed banks to change compensation practices and rein in risk-taking to prevent a repeat of the 2008 financial crisis, which many saw as precipitated by greed and lack of proper risk oversight. Yet banking executives have said that has put their firms at a disadvantage to US peers and some academics have also faulted the European system as being too blunt.
“There is generally room for improvement in this area, which calls for supervisory attention,” the ECB said. It didn’t give further details on measures that it might take. The watchdog said the deficiencies it observed also hold true for employees in internal control functions and even for chief risk officers.
The ECB also said that banks need to improve processes for canceling unvested bonus payments or clawing back funds that have already been paid.
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.