European Central Bank President Jean-Claude Trichet said Friday that euro-zone financial institutions should make boosting their capital ratios a higher priority than channeling bigger profits into bankers' pay.
During a speech in London, Trichet stressed that exceptional support provided by the ECB is aimed at providing finance to the broader economy, and that it is time for banks to "take up and maintain this responsibility."
Though regulatory capital ratios at large euro-zone banks are now generally at higher levels than before the crisis, Trichet said "a number of institutions" need to increase their capital levels.
"I urge banks to take full advantage of the recent recovery in their profitability to strengthen their capital positions, rather than to distribute a large part of their profits or to pay out unwarranted levels of compensation or bonuses," Trichet said.
The bonus culture is one factor that could drive financial participants in the "wrong direction," toward speculation, short-termism and self-serving behavior, he said.
The ECB last week laid the groundwork for rolling back some of its special monetary stimulus in 2010, but kept in place the bulk of measures designed to combat the recession and banking crisis.
Trichet said that strains on the financial system in the euro zone have been easing in recent months, and that the recovery in some markets now is "very significant."
"We have made clear that we will unwind enhanced credit support in a timely and orderly fashion," he said.
Responding to questions from the audience, Trichet also expressed concern that reductions seen in current account surpluses and deficits, while welcome, seem to be consequences of the crisis more than of true structural change.
"If we don't correct these structural imbalances, then we have the recipe for new problems," he said. When pressed on where such action is needed most greatly, he said that this meant a number of emerging economies — in particular in Asia, but not just China — which have big surpluses, and industrialized nations with large deficits.