Bankers' expertise needed to sharpen new bank watchdog's teeth

FRANKFURT Sun Mar 2, 2014 12:04am EST

A structure showing the Euro currency sign is seen in front of the European Central Bank (ECB) headquarters in Frankfurt July 11, 2012. REUTERS/Alex Domanski

A structure showing the Euro currency sign is seen in front of the European Central Bank (ECB) headquarters in Frankfurt July 11, 2012.

Credit: Reuters/Alex Domanski

FRANKFURT (Reuters) - German banker Korbinian Ibel gave up a company car and took a pay cut to seize the chance to join a new organization that could play a big role in taking European integration to the next level.

He has accepted one of the top jobs at a new part of the European Central Bank in Frankfurt that from November will police 130 banks in 18 countries across the euro zone, including Commerzbank (CBKG.DE), where Ibel worked for five years and was in charge of risk.

As a former banker, Ibel has the expertise the ECB needs for its new watchdog, known as the Single Supervisory Mechanism. But attracting more bankers of his caliber might prove tough given that the ECB jobs pay less than the finance sector.

The European Union's plan to bring euro zone bank supervision under one roof at the ECB aims to restore the region's banks to health after the financial crisis.

The United States got its banks quickly back on track, but in Europe many banks are weak and still in recovery mode and wary of lending money needed to drive economic recovery.

Ibel sees his new job as central to efforts to help fix the banks which could prevent a repeat of the crisis of the last few years that has hit jobs and growth.

"This is a unique opportunity to shape the future of Europe," Ibel told Reuters, sitting in his office in Frankfurt's Japan Tower, a stone's-throw away from the ECB's headquarters. A few moving boxes still need unpacking.

"What we do will not only have an impact on the European banking system, but also on the real economy, which will benefit from safer and stronger banks," he said.

Unifying banking supervision at the ECB is the most ambitious step towards European integration since the launch of the single currency 15 years ago.

Hiring the right people from the start is crucial for the project's success and the ECB is leaning heavily on national authorities to find the 770 supervisors it needs by November.

Since the financial crisis, which exposed big failings in regulation, the required skills for effective supervision have changed, said Julie Dickson, who works at the Financial Stability Board, which coordinates financial regulation for the Group of 20 (G20) leading economies.

"These days, there is an expectation that supervisors have robust discussions with CEOs and boards and they delve into matters like succession planning at systemically important banks and they delve into risk culture," Dickson, who chairs the supervisory intensity and effectiveness group at the FSB, said.

"These are skills that were not abundant in supervisory agencies some years ago," said Dickson, who is also the head of Canada's main financial services regulator, the Office of the Superintendent of Financial Institutions (OSFI).

The ECB has its work cut out finding all the supervisors it needs by November. There are 200 people already working for the new watchdog but that is both supervisors and support staff.

As Sabine Lautenschlaeger, vice-chair of the watchdog has said: "Supervisors don't grow on trees."

HUNDREDS OF APPLICATIONS

The ECB has started filling the empty seats from the top and is receiving hundreds of applications for the rest.

Ibel, 40 and a father of four, is one of two director generals that have come from the private sector out of a total of four.

He often fields calls at the weekend from former industry colleagues, asking about possible jobs, but their enthusiasm usually fades once lower ranking roles come into play. Though those are the kind jobs Ibel mainly needs to fill.

His department of 250 staff is the largest of four at the new watchdog, in charge of a wide range of functions from risk analysis and crisis management to developing guidelines for supervisors, defining sanctions and enforcements and handing out authorizations to banks.

Soon, he will go on a tour around Europe, to meet bankers and supervisors in Belgium, France, Finland, Austria, Spain, Italy and the Netherlands, building relationships and keeping an eye out for those he would like to bring on board.

The pay for supervisors at the ECB watchdog normally starts at around 55,000 euros per year and can go up to about 120,000 euros, depending on expertise. ECB staff also get taxed according to European rates, between 8 and 45 percent, which are often lower than in EU member states.

Average pay at Deutsche Bank (DBKGn.DE), for example, was $169,500 last year and at Swiss bank UBS UBSN.VX $380,000.

The ECB is also developing procedures to ensure that any job a supervisor takes during a period of up to two years after leaving the ECB will not lead to a conflict of interest with the work of the bank watchdog.

"WILL THEY EAT US, OR WILL WE EAT THEM?"

But for Ibel, it was not about the pay, but about influence.

Having been on the receiving end of supervision throughout his career at Accenture, Boston Consulting, Deutsche Bank and Commerzbank, which taught him the industry short-cuts to deal with regulation, he now wants to use his knowledge to sharpen oversight.

"I will put more focus on material risks," Ibel said.

For example, instead of asking banks in questionnaires how large their staff bonuses were, it would make more sense to ask how many people had got a large bonus in spite of missing their performance targets.

A mixture of career supervisors and bankers from the private sector could be a powerful combination for the new watchdog. But they need to be put together with great care, Dickson said.

"Integrating people from the private sector with career supervisors is also important and something you need to pay attention to, because they can be different, there can be cultural issues," she said.

At Britain's Financial Services Authority (FSA), replaced in 2013 after 12 years by a new regulatory regime, such a clash of cultures became evident.

"There was a tension between the public sector culture and the City culture," a former senior FSA executive said, referring to the City of London finance center.

At the ECB, there is some unease among staff about newcomers from the private sector.

"Will they eat us, or will we eat them?" one central bank source asked.

As for Ibel, he said his career had prepared him for a lot, having been co-head of treasury at Commerzbank when U.S. investment bank Lehman collapsed or when managing Commerzbank's Ukraine Bank Forum that fell victim to a crisis in emerging markets.

"What I haven't been prepared for is a public authority," Ibel said. "But I'm willing to learn."

(Additional reporting by Laura Noonan in London. Editing by Jane Merriman)

Recommended Newsletters

Reuters U.S. Top News
A quick-fix on the day's news published with Reuters videos and award-winning news photography and delivered at your choice of one of four times during the day.
Reuters Deals Today
The latest Reuters articles on M&A, IPOs, private equity, hedge funds and regulatory updates delivered to your inbox each day.
Reuters Technology Report
Your daily briefing on the latest tech developments from around the world from Reuters expert tech correspondents.