The head of the banking watchdog at the European Central Bank has said he is not convinced that bonuses for senior bankers attracts talent in the sector.
Andrea Enria was appointed Chair of the Supervisory Board of the European Central Bank earlier this year. He is in Dublin to speak at a conference of the Federation of International Banks in Ireland.
There have been calls from the banking sector for a return of bonuses in order to attract senior executives, but Mr Enria is not convinced that it would be effective.
"Irish banks have been supported at an unprecedented scale so it is fair that the Government has imposed constraints on bankers' bonuses, and it is up to the Government to decide when the legacy issues have been sufficiently addressed to relax this constraint," he said.
"More generally, we as regulators care about setting the remuneration and incentives on a sounder scale, to make sure these do not encourage risk taking; that they are in line with capital plans and the long term viability of the bank rather than short term profits."
Mr Enria said there should be claw back clauses when it comes to bonuses, so that if risks materialise, the money can be returned. "There needs to be a lot of elements that ensure that the incentive schemes are not driving excessive risk."
Last month, the Central Bank imposed a record fine of €21m on Permanent TSB over failings which affected 2,000 customers with tracker mortgages.
The chair of the Supervisory Board of the ECB said making banks accountable and making them pay when they make mistakes is important. "I think is an important ingredient of the corrective actions that public authorities have in their armoury."
The Government is looking at giving more powers to the Central Bank to hold senior bankers personally responsible for failings in banks, following the tracker mortgage scandal. The ECB does not regulate conduct, but Mr Enria said setting the right culture in a bank is important.
Mr Enria said, "I think that what is important is that there is a serious cultural change at banks, that cannot be legislated or generated by sanctions. It needs to come from within the banks. Banks should embrace change in this respect."
He also acknowledged the significant progress made by Irish banks in addressing non-performing loans.
When the ECB started taking up responsibility for supervision in 2014, the ratio of non-performing loans to total loans for Irish banks was around 24%, now it is 6.4%.
"The reduction has been very significant but it is still higher than the average in other euro area countries. There is a way to go to correct the process but the direction of travel is the right one. It is important that the journey is completed while the macro-economic outlook is still positive."
Finally, Mr Enria said he hopes there will not be another financial crisis in the near future, but if there was to be, European banks are better prepared.
"European banks are much more resilient right now, both in terms of capital position and in terms of liquidity. They have also been asked by regulators to prepare for a future possible crisis. We are better prepared but I hope we don't get there," he added.
