Bank Pay Under Scrutiny After ECB Raises Bar for Good Governance

(Bloomberg) -- The European Central Bank will take a close look at how banks pay executives and said lenders haven’t done enough to improve their decision-making systems.

The ECB wants to make sure compensation is conducive to the “sound and prudent management” of lenders, said Daniele Nouy, who heads the central bank’s supervisory arm. One focus will be to see whether lenders follow European Banking Authority standards for paying managers, she said.

Nouy said that the ECB has raised the bar for what counts as sound governance since taking over banking supervision from national authorities in 2014. “Banks have made progress, but they have not yet cleared the bar,” she said in a speech in Frankfurt. “So they definitely have to aim a bit higher.”

The ECB will also review its system for assessing whether managers are fit to run their banks as part of a wider check of its authorization processes, Nouy said. That system was criticized last month when the ECB was forced to declare a Latvian bank failing or likely to fail after the U.S. accused the lender of laundering money and violating sanctions on North Korea. The lender, ABLV Bank, denied the allegations, but that didn’t stop deposit outflows.

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