Central Bank Governor Patrick Honohan has said the issue of bankers' pay cannot be dismissed as something that does not matter 'in the large scheme of things'.
In a speech to Financial Services Ireland, he said paying bonuses on the basis of apparent short-term profits was 'a particularly harmful practice', though he was willing to accept high salaries for some key positions.
Professor Honohan also warned that, in future, banks could expect 'challenging and assertive' regulators, who would take an 'independent and robust' view of the risks of a firm. He said these would be backed by a 'credible threat' of enforcement action.
The Governor said there would a renewed emphasis on enforcing rules, even at the risk of the incurring legal costs in unsuccessful court actions.
He also warned that - with more firms coming into the IFSC - more resources would have to be devoted to monitoring these. The Governor said we could not expect the public purse, though the Central Bank, to continue to pay, in effect, half of the costs of this activity. Professor Honohan also said he would not allow Ireland to become 'a soft option' for firms or activities which were no longer welcome elsewhere.
The Governor said a new fashion in bank supervision which emerged in the 1990s had had a disruptive effect in Ireland. This involved a focus on banks' procedures and systems, rather than their accounts and loan portfolios. He said the regulator 'lost sight' of the details of the banks' portfolios and failed to question their business models.
