Interview with RTE Morning Ireland

Interview with Andrea Enria, Chair of the Supervisory Board of the ECB, conducted by Petula Martyn on 20 June 2019

Andrea Enria was recently appointed Chair of the Supervisory Board of the European Central Bank. He's in Dublin today to speak at the conference of the Federation of International Banks in Ireland. Before he speaks at that event, he joins us in the studio. Good morning, you're very welcome.

Enria: Good morning.

Let's talk about Irish banks. Last month the Central Bank of Ireland imposed a record fine of €21 million on Permanent TSB over failings which affected two thousand customers with tracker mortgages. It was the biggest fine ever imposed by the Central Bank. Are fines like that enough of a punishment when banks get things wrong?

Enria: Well, the mortgage trackers were a very serious topic and banks should not only comply with the rules, but should also treat their customers fairly. That's an important thing. And making them accountable and making them pay when they make mistakes is an important ingredient of the corrective actions that the public authorities have in their armoury. That's an important element. The ECB is not a conduct regulator, but let's say we care about that because the culture and governance of banks are very relevant. What is important is that there is a serious cultural change at banks that cannot be legislated or generated by sanctions, but needs to spring from within the banks. It's the banks that should embrace change in this respect and this is a topic that I will address today at the conference.

The banks here say that they are embracing cultural change and because of the tracker mortgage scandal, the Government here is looking at giving more powers to the Central Bank to hold senior bankers personally responsible for failings in banks. Has that worked in other countries?

Enria: There has been in the UK the Senior Management Regime that uses similar concepts and I think it is a positive thing to have senior managers accountable for what they do. Still, again, the culture is important, so the responsibilities and the changing culture need to go throughout the organisation at two levels: at middle management and also at the frontline business.

Staying with culture, I guess, do you think there should be a return of bonuses for bankers in Ireland?

Enria: Well, I know that Irish banks have been supported on an unprecedented scale during the crisis, so it's clear and fair that the Government has imposed constraints on the bankers' bonuses. It is up to the Government to understand when the legacy issues have been sufficiently addressed to relax these constraints. More generally, we as regulators care about setting remuneration and incentives on a sounder scale, to make sure these incentive schemes do not encourage risk-taking, and that they're in line with capital plans and with the long-term viability of the bank rather than with the short-term profits.

Is this a disincentive if Irish banks are not paying their top people bonuses and high salaries?

Enria: Well, I'm not really convinced that very high salaries are a must and that banks which are prevented from doing that will not be able to attract talent. Of course, let's say the point to me is more from a prudential perspective; not so much the level of the pay, but the incentives which are embodied in the payment mechanism. For instance, not too much short term, having clawback and malus clauses could be very important and making sure that if the risks materialise the money could be clawed back. There need to be a lot of elements that ensure that the incentive schemes are not, let's say, driving to excessive risk.

We've seen a number of banks here sell portfolios of non-performing loans to so-called vulture funds. How do Irish banks compare with European banks in terms of reducing the number of NPLs on their books?

Enria: Well, there has been very significant progress in addressing the non-performing loans issues at Irish banks. When the ECB started taking on responsibilities for supervision in 2014, the ratio of non-performing loans to total loans for Irish banks was around 24%. Now it is 6.4%. So the reduction has been very significant. It is still higher than the average in the other euro area countries, so there is still some way to go to complete the process. But the direction of travel is the right one and it is important that the journey is completed while the macroeconomic outlook is still positive.

The financial crash here in Ireland is very clear in Irish people's memories. How soon is the next financial crash, in your opinion?

Enria: Well, I hope there won't be any crash in the near future! But in any case, what I can say is that the European banks are much more resilient right now; both in terms of capital position and in terms of liquidity position they are now much stronger. They've also been asked by regulators to prepare in terms of recovery and resolution planning, for instance, for future possible crises. So we are better prepared, but I hope we don't get there!

So do we! Andrea Enria, Chair of the Supervisory Board of the ECB, thank you very much for joining us this morning.