McCreevy: remuneration practices within banks will be brought under the supervisory spotlight
01 October 2009
There is now international consensus that this situation cannot continue. Banks will be required to have sound remuneration policies that comply with balanced principles about the calculation and payment of bonuses, or else face supervisory sanctions.
Concerning banking regulation, amendments to the Capital Requirements Directive seem to be a regular event these days. The season turns and the Commission adopts a new proposal to ratchet up regulatory capital. In October 2008 we proposed the first set of changes – 'CRD 2'. These measures aimed to set the right framework for robust supervision of cross-border banks and to tackle head-on the perverse incentives, needless opacity and shamefully lax standards of a hyper-active securitisation industry that caused so much damage to the global banking system. Sadly, however, parliamentary and Member State amendments significantly diluted the potential effectiveness of the proposal and this is an issue which McCreevy hopes will be put right in future revisions.
With regard to remuneration practices within banks, McCreevy stated that they will be brought under the supervisory spotlight. There is now international consensus that this situation cannot continue. Banks will be required to have sound remuneration policies that comply with balanced principles about the calculation and payment of bonuses, or else face supervisory sanctions.
He concluded by saying that “financial regulation needs to ensure sound prudential standards and investor protection without unduly fettering business and stifling innovation. This is a very difficult balance to strike, and the pendulum may swing too far in either direction. The outcome will never be perfect – financial markets are too complex for that. But we need to keep trying. If that means a Solvency 3 or CRD 4, 5, and 6, so be it.”
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