Bankers bonuses are now ultimately regulated by the European Central Bank (ECB) and its Single Supervisory Mechanism (SSM) – the division set up within the ECB to directly supervise the conduct of the Euro Area’s banking industry.

It was given this power in the wake of the worst banking collapse in 80 years. 

The bonus culture that had grown up in the banking industry was widely seen as a contributory cause of the crash - the bonus schemes incentivised bankers to take on too much risk. 

The more risk, the more reward.

"That’s why we needed the regulation of the bonus packages and compensation packages because there really were incentives to take risks without considering what could happen with these risks", says Daniele Nouy, Chair of the ECB Supervisory Board.

She then posed a question a lot of people in Irish banking have been thinking about: "Is this the moment right now to think about bonuses when you still have work to do on your balance sheet, to clean the balance sheet before the next crisis - definitely not in my view."

"A number of banks need to get the authorisation of the supervisory board of the SSM to deliver these bonuses or pay dividends - because we consider they are not strong enough to be doing that.

"These banks will have to ask for that authorisation and they are likely not to get it", she says.

Ms Nouy added: "I cannot speak for the supervisory board - it’s got 25 members and decides by majority vote - but knowing my colleagues I have not much doubt on the outcome of the discussion".

Will bankers have to do a lot more work before they can go looking for bonuses?

"Exactly - whenever the banks have addressed the legacy of the previous crisis, totally and fully, then they can consider compensation for this outcome."

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She goes further, arguing that if any bank staff deserve bonuses, they are the ones dealing with Non-Performing Loans and other legacy issues in the banks – the toxic residue from the banking crisis that has to be worked through, case by case, to restore the industry to normal functioning. 

It is the people who have to deal with sometimes traumatised customers who deserve the money, not, as she puts it, those who are "developing the risk of the banks".

This week’s technology problem at Ulster Bank, where some customers account information "went missing," comes as little surprise to those working in bank supervision in Frankfurt. 

One of the issues that have loomed large for the ECB in doing their deep dives into the banks, has been the discovery of widespread weaknesses in the Information Technology systems of banks right across the euro area.

The supervisors have found in case after case banks that find it difficult to pull together information for analysis because their systems are unable to perform the task.

With more regulation, the demands for information processing to comply are becoming more intense, and banks are having to spend vast sums to bring their IT systems up to scratch.

Some banks have skimped on investing in IT down the years to boost profits, but are paying the price now, as creaking systems struggle to cope, are costly to upgrade and are prone to systems failures and glitches.

They also face intense competition from the new "fintech banks," that can start up with the latest technology and serve lots of customers with very little overhead (Germany’s N26 has 850,000 customers in 13 EU countries, served by a staff of just 350).

Ms Nouy wants the banks to up their IT expertise - especially at board level, where the supervisor wants directors to spend a lot more time discussions and understanding their IT systems.

She said: "Obviously it is very important for one category of banks, the fintech banks.  Fintechs are banks using the maximum of new technology to deliver banking services.

"We expect these banks to have a very special and very good level of expertise on their board and senior management. 

"But it is important for all the banks as a number of customers want to have their banking services provided through digitalisation, and the banks have to take that into account to be able to offer good services to people who want to get their services in that way, particularly the young people."

The problem is that it cannot be just a window for attracting customers - it has to be a plug into the internal IT of the bank, which is fully ready to act on producing the information that is needed in a very modern and appropriate fashion as well.

Some banks try to use shortcuts like outsourcing, but outsourcing is also a source of risk - they have to make sure they control enough of the services they are receiving, otherwise they might be in difficulty if there are problems.

Ms Nouy also makes the point that not all fintechs are banks – some big technology companies, like Google and Apple are moving into the business of payment services – and taking part of the banking industry’s income stream in the process. 

If the traditional banks want to compete with the new operators, they have to become better at IT.

And not just because it is a source of customer service revenue, but also because IT is a source of risk, notably from cyber crime, but also from system failures. 

Ms Nouy said: "When there are incidents -  I don’t want to comment on particular banks, and I know that they are fixing their problems with the Central Bank here in Ireland - but it is a reminder to banks everywhere that they have to be serious about IT and they have to have appropriate investments in IT".

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The former secretary general of the Basel Committee – the rule setting body for banking worldwide – Daniele Nouy is well placed to assess the state of Europe’s banks in a global setting. 

"We had a long crisis, and during the crisis IT was not a top priority of the banks. Maintenance of the IT investment was not a top priority. Then after the crisis, if the banks were burdened with NPLS, if the banks had profitability issues, then it was not exactly the top priority to invest in IT either.

"So now it’s definitely the time to be serious about it and make the appropriate investment. Outsourcing can be used for certain elements, but it is not the global solution for the problem. The banks need to be in the driving seat for their IT products, systems and procedures", she says.

Brexit is an issue for bank regulators – like so many others involved in administration – and the ECB has advised firms that if they have to establish themselves in an EU state for business life after Brexit they must have their paperwork in by June. 

This is to allow sufficient time to process the application and issue a banking license. (The Bank of England and FCA in London have told firms seeking UK licences they must do the same, in order to be able to operate smoothly in the event of a hard Brexit).

Ms Nouy told RTÉ News: "We said that for the banks that need a license within the Euro Area if they want to be sure to have their license on time whatever the final circumstances are.

"Obviously we will do our best to address all possible issues on time to help the banks to have a smooth comfortable transition in the relationship with their customers, but people need to be reminded that it takes time so they have to move early enough".

Are they moving early enough?

"Yes.  For a number of months we have had a number of discussions on possible plans, firms were testing reactions to possible solutions.

"But after these discussions, starting at the end of last year, we have plans that are quite advanced, sometimes complete, and we have started working on the licenses, we have been formally asked to provide those licenses that are needed".

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The big mission for the SSM at the moment is to push a reduction in the amount of non-performing loans (NPLs) on the books of Euro Area banks. 

The crisis, of course, led to vast numbers of bad loans in the banks – but not everywhere. 

The euro area average is just over 5% but in Ireland it is just over 12% of lending. 

In Greece it is almost half of the loan book. But in other countries its very low – Spain, which like Ireland had a property and banking collapse, has an NPL rate of 4.8%, while in Finland and Luxembourg, the bad loan rate is just 1.2%,

The ECB wants the banks in countries with high rates of NPLs to get the numbers down to the Euro Area average. 

Ireland, says Ms Nouy, has made a lot of progress in reducing its NPL rate – but the banks are now down to the hardest part of the problem – bust mortgages.  (Sharon Donnery, the Central Bank deputy governor, is leading the ECB efforts on NPL reduction across Europe).

Is Ireland the only country where bad loans are allowed to go unresolved for more than five years?

Ms Nouy said: "Loans are not expected to get to that stage, but it’s not only in Ireland, it happens in some other counties in Europe because of the crisis.  But it has to be addressed because we cannot let the banks enter into the next crisis with the legacy of the previous crisis.

"That will be a source of weakness that we should not have. And now is the time to do it because growth is back - and it has been back in Ireland even earlier than in many other countries.

"One day there will be another crisis - I don’t know when and I don’t know what will trigger it - but that’s the job of the supervisors, we have to make sure the banks are safe and sound and have addressed the legacies of the previous crisis before they go into this (new) period".

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Recovery of security has been cited by the banks as a big problem in Ireland. 

They say they have to charge higher interest rates – in fact the highest in the euro area – to reflect the risk inherent in the fact that it takes a very long time to repossess a property in Ireland. 

Ms Nouy says it does take a long time to recover collateral on bad loans in Ireland, but it is not the only country where that is the case. 

As part of its work, the ECB had to understand the legal systems surrounding property banking in each of the 19 member states. 

Each one is different, and that is the main reason why there is no single market in bank loans – why an Irish consumer cannot get a mortgage from a Belgian bank on Belgian terms and conditions.

Ms Nouy cites legal reforms on repossession that have been introduced in a number of countries, notably Greece and Italy (where the biggest stock on non-performing loans by value exist) - and the introduction of non-judicial settlement arrangements.

"Obviously that is preferable. But when the situation has been lasting for a number of years without finding a solution, something has to be done - repossession of collateral or the banks make the provisions and consider that is a loss at a certain moment - you have to recognise it if it is a loss. But it is a very diverse situation".

Ireland and Spain are contrasting situations – both had big property and banking blows outs, but while Spain has amongst the lowest mortgage interest rates in the euro area, Ireland has the highest. 

And its rate of non-performing loans is almost three times that of Spain.  Is there a direct link between bad loans and interest rates?

"It is very difficult to compare the countries, Ms Nouy said.

"Maybe we don’t have enough harmonisation of the legislation.  We have 19 different ways of doing mortgages in the euro area. We are in a situation where supervision has to be commensurate with the risk profile of the mortgages.

"The interest rates, the return for the banks, the margin is commensurate with the risk to the mortgages.

"Something I would recommend is to have simpler mortgage products. Complexity is always a source of difficulties. Sometimes mortgages are complex in this country.

"I prefer the situation of my country [France] where it is much simpler. Maybe retailers consider they have lost some opportunities by missing some complexity that might have some benefit in a certain period of time, but might also be a source of losses in different times.

"So I would recommend more harmonisation in Europe in this field and more simple products for retailers".

Are Tracker Mortgages a complex product?

"Yes, it is a complex product. This is what happens all the time with complex products - they create difficulties precisely because not all retailers are well enough aware of the different niceties and specificities of financial products - to identify and mitigate the risk".

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Last month, Ms Nouy told the European Parliament that profitability is the number one challenge for Europe’s banks, big and small, in all countries, and especially for those burdened with NPLs.

All the Irish banks tell us they are profitable now (Berenberg analysts in a report earlier this year said AIB is probably the most profitable bank in Europe). 

But is it not that easy if you are charging the highest interest rates in the euro area, as the Irish banks are?

Ms Nouy said: "I would not necessarily say that, it is not necessarily the case - you have to have to compare net operating incomes, net interest margin on one side, but also operating costs on the other side - investment in IT for example to make the banks not only profitable today and tomorrow, but on a sustainable basis".