The Government is set on Tuesday to consider the outline of planned laws to make senior bankers more accountability individually for failings or wrongdoings.
The heads of the bill had been delayed by almost three months as Brexit topped the political agenda.
"Tomorrow morning I'm taking to Cabinet proposals in relation to how we can strengthen the accountability and sanctions available to individual members of our banks," Minister for Finance Paschal Donohoe said on Monday evening at the launch of former Central Bank governor Patrick Honohan's new book Currency, Credit and Crisis: Central Banking in Ireland and Europe.
The Minister originally said last November – in the wake of the tracker mortgage scandal – that he planned to publish draft laws in the first three months of this year, paving the way for a so-called senior executive accountability regime for senior bankers, insurance and asset management executives.
The rules – similar to those introduced in the UK in 2016 – would force firms to document top managers responsibilities, making it easier for regulators to make individuals answerable if they take unnecessary, uncalculated risks, refuse to follow correct processes or knowingly commit wrongdoing.
The new regime is expected to come into force next year, after the Central Bank holds a consultation period.
The development comes as the Minister has received in recent weeks a copy of a report carried out by executive search company Korn Ferry into remuneration in the sector, which is said to advocate for a relaxing of pay restrictions and a bonus ban across bailed-out banks stretching the past decade.
Skills required
Mr Donohoe noted last week in a written response to a parliamentary question from Fianna Fáil finance spokesman Michael McGrath that the pay restrictions affect 23,000 workers across the three banks in which taxpayers hold a stake.
“The skill set required in the banking sector is evolving with the greatest demand for staff now in areas such as the digital economy, risk management, legal and compliance,” he said. “These skills are in demand right across the economy.”
"In the senior ranks of the banks the substantial disparity in pay levels versus other Irish listed companies or peer banks in Europe is stark and introduces an obvious retention risk particularly in AIB and Bank of Ireland. "
Meanwhile, Prof Honohan, who was plucked from academia to lead the Central Bank through the tumultuous period between September 2009 and November 2015, argues in his book that the Republic’s lenders, caught more recently by the €1 billion-plus tracker-mortgage scandal, need “deeper reforms in banking culture”, though this may prove to be an “intractable” issue.
Before retiring from the Central Bank, Prof Honohan pushed through the introduction of mortgage rules, capping loans against property values and borrowers’ income. He wrote in his book that the limits should be retained as bankers “cannot be relied on to operate effective risk-management systems when these interface with the ambitions created by senior management overconfidence”.
Speaking at the book launch, Prof Honohan said that the financial market “is always wrong”.
“On average, it’s right, but it’s nearly always wrong,” he said. “We saw how wrong it was in the years before the crisis of 2007. It was over-optimistic. But then after that, and progressively in 2008, 2009 and 2010 it became too pessimistic.”
Prof Honohan said that is the reason why it is necessary to have macro-economic and monetary and financial stability authorities. He said, however, that the public sector can also get things wrong.
