According to Christian Noyer, governor of European Central Bank (ECB), even though the global economy has stabilized, downside risks remain – reported Reuters. Speaking at a financial conference in Singapore, he warned banks that they should preserve capital rather than paying it to bankers and investors.
Recent news that Goldman Sachs had kept aside $16.8 billion to pay staff, immediately after repaying $10 billion in taxpayer money, sparked fears that Wall Street is back to practices that were prevalent before the crisis.
Pointing to bankers’ exorbitant compensation packages that are not in line with performance’s, he said: “Nothing could be further from the truth. Indeed, one major risk in the period to come is the emergence of a business as usual mentality. There are signs that parts of the financial industry have resumed risk taking practices reminiscent of those which led to the crisis.
“Most of the negative effects of the economic downturn on balance sheets are still to come. Efforts toward long term reform must not create, in the short run, additional downside risks to economic activity. This would require some restraint in dividend distribution and of course in the overall amount of variable compensation. In parallel, all possibilities to issue new equity should be exploited,” reported the news agency.
