Banks Still Need To Become Less Risky, Further Curb Pay Structure, Industry Survey Says

Banks need to do more to shift away from a culture of risk and the excessive pay structures that prevailed before the financial crisis, an industry report said.

Banks have made progress since 2008 as top management and boards have become more involved in setting risk policy and they developed internal stress testing models, according to the survey of 62 firms released on Tuesday.

But reforms were far from complete, with risk appetite across the firms broadly unchanged, said the report by Ernst & Young, conducted on behalf of the Institute of International Finance (IIF).

The IIF, an international lobby group for banks, investment managers and other financial institutions, laid out risk management recommendations just before the height of the crisis in mid-2008 and has charted the industry's progress since.

It found that in key areas such as compensation, banks had yet to make real headway in aligning pay to risk-adjusted performance.

Although 78 percent of executives said they had reviewed compensation programs, up from 58 percent in a 2009 survey, only 40 percent said they were actually close to completing their initial rounds of changes to pay structures.

The most recent survey of banks from around the world was conducted at the end of 2010 and said many introduced new pay structures for the 2010 bonuses round, including more deferred pay and lower payouts in cash, but 10 percent of respondents to the survey said they had not yet begun a compensation review.

Banks have become far more focused on liquidity risk than ever before, one of the areas that tripped firms up during the crisis and led to the collapse of Lehman Brothers.

The report found that 92 percent of banks had made changes to liquidity risk controls, while 89 percent of respondents said the role of their chief risk officers had been elevated, with half of those polled now reporting directly to the CEO.

(Reporting by Sarah White; Editing by Jon Loades-Carter)

Copyright 2011 Thomson Reuters. Click for Restrictions.

Comments

[DiogenesOfAlaska]

03:24 PM on 04/13/2011

Well, if it takes years for the news to travel to compensation committees that reform is overdue, then what exactly are these boards of directors and oversight entities doing?

Nose-picking?

What are THEY being paid for?

[mgrant33301]

04:31 PM on 04/12/2011

that's sort of like asking congress to vote in term limits and campaign finance reform. good for society, but they rule their own destiny. and clearly they could care less about what's right for america. they only care about reelection.
you expect banks to curb their pay plans???
not likely.

[Y3rMawm]

12:56 PM on 04/12/2011

It is impossible to fix risk taking, when the government has been holds a gun to taxpayers' heads to guarantee, for decades, the risks that these banks are taking.

[Y3rMawm]

12:58 PM on 04/12/2011

..and does not throw those who have committed document fraud, in jail. It's like rewarding your puppy for crapping on your carpet.

[Gregor53]

11:31 AM on 04/12/2011

I now understand the connection between Wall Street and the Bull!  From what I have seen, those that get the pay take none of the risk.  Even when they fail and cost investors billions, they still get millions to ensure that their "talent" is not lost to some other group that has just failed.

[Moshe]

11:12 AM on 04/12/2011

That famous "Wallstreet Bull" would be a good area for public floggings of corporate thieves wouldn't it?

Just a thought . . .

[builderman55]

11:07 AM on 04/12/2011

I may just be a middle class working stiff that is just not intelligent enough to understand the sophisticated principles underlying corporate finance, but nonetheless I ask: what sense does it make to have the same people who benefit from the obscene salaries also be the ones to assess compensation packages and make recommendations about how to modify them? I'm just askin'

[joseph2010]

10:24 AM on 04/12/2011

As the advisor's were telling us years ago the ECONOMY IS MOVING TOO FAST!
Many homes are saturated with goods! Remember when the 'news' asked: how many homes have a TV? Well how many have more than 3 TVS? Cars? Computer? Remember when Jeans cost no more than $18.00?!!! Now there's designer Jeans going for well over a hundred dollars; have become an EVERYDAY fashion statement AND in some cases are excepted as 'proper attire' in many establishments!
Remember when it was the 'norm' to have to wait a couple of days for your TV order to come in. NOW every store has dozens of many different models sitting there waiting for you to come get them!
The point is TODAYS America no longer needs or ALREADY has everything and anything made today in the world!
This does not bode well for not only businesses but the Financial sector!

Considering the above ...With the economy in such a poor state - I see Folks more & more question the lack of quality of merchandise on the shelves. Beginning to say 'NO' to the garbage produced.
I say again also - It is an American person ordering and DESIGNING the merchandise manufactured out of this Country. And as you see - they are NOT passing [some] of the savings to the American people!

[blackranger]

11:58 AM on 04/12/2011

TVs will be long gone soon. Why would I pay fifty dollars a month for tv programming that is free or much cheaper online. A larger screen for my laptop and I can get all the media entertainment I would ever want and much of it a lot higher quality than TV. There is alway new technology out there for people to buy, even though americans are less and less able to afford such luxuries. Also sad that the profits from those products will be less and less to Americans. Germany is doing some interesting things that are working. German products are higher priced, wages are higher too. There is a market for quality, but I can remember when American industry decided to cut quality to compete and lost their market to the imported goods. True that some folks only look at price, but some of us still are willing to pay more and not have to replace the item every six months. There is also the issue of waste. In Germany there are recycle plans for all or almost all products. A whole new industry waiting to be here.

[joseph2010]

10:19 AM on 04/12/2011

Making financial decisions during a time of prosperity is supposed to question the 'life expectancy' of the good times. In example: clearly those buying a home or buying a larger home did not ask this question but naively thought the good times would last forever!
They forgot the wise advice to assure you can live up to the promise of paying every month for 30 years AND You should not have a mortgage close to or in your retirement years!
It surprises me that Folk (50 to 70 years old) on Financial radio asking for advice volunteering they still owe 150,000 or more on their residence. You noticed I said their residence NOT their Home!
With that said - You in the Banking sector - the party is over for you too!

[blackranger]

12:05 PM on 04/12/2011

It amazed me, as well. How could folks think that they would have $3,000 -to $5,000 a month for 30 straight years? People did not think ahead, just got sold a bill of goods that the house would be worth more and was just an "asset" Having my house paid for is a must in my book, securing a place to live is pretty basic. I also keep a good stock of food in my house and consider poverty is having nothing to share with others. The rest of the "goodies" are just that, "goodies" but I think folks these days do not understand that they exchange the hours of their lives at work for those "goodies" Kids need to earn what they get from their parents by participating in the "work" of families, the house cleaning and yard work and such. Teens need part time jobs to pay for clothes that parents think are silly or in bad taste. Parents are not doing a very good job of teaching their kids the most basic of values.