how could we focus on bank governance and culture?
By 'governance', It mean broadly the oversight that comes from banks' own shareholders and other stakeholders of the way in which they are run. The problem of bank governance stems from the way in which banks are financed and regulated, from the externalities bank failures produce, and from the nature of their assets.
Banking Conduct and Culture. ... Culture is the mechanism that delivers the values and behaviors that shape conduct and contribute to creating trust in banks and a positive reputation for banks among employees, the investor community, and the wider public.
Economic Financial crisis was in part a consequence of inadequate formal rules for bank capitalisation and liquidity, of failures of regulatory cooperation, and of ineffective insolvency regimes for banks. Policy makers have focused much of their reforming energy on these problems. But cultural factors are also an extremely important determinant of outcomes in financial markets, and there is widespread agreement that dysfunctional behaviour in financial markets can be attributed to undesirable cultural standards. Policy can only be effective if it is built upon firm foundations. But culture is complex, tacit, and hard-to-codify; in some circumstances, it may even be impossible for outsiders to observe a culture.
Banks and regulators are therefore asking what more they could have done in the wake of past issues, and what more they can or should be doing now to avoid recurrence in other places. Bank boards are wondering how they can be sure that executives are truly addressing any persistent underlying issues as they face increasing financial, reputational,
and even personal risk. Regulators and policymakers, meanwhile, are considering whether further fundamental changes are needed across the industry.
This View Points synthesizes key themes emerging from those discussions in the following sections;
- Renewing the focus on issues of culture in banks and banking -Persistent misconduct and the accompanying fines have attracted greater attention not only from conduct, but also prudential regulators concerned about governance, risk management, and the ultimate safety and soundness of banks. Supervisors and bank leaders are increasingly concerned that the root cause of conduct and other risk issues is a more fundamental problem requiring long-term culture change.
- Developing holistic approaches to culture reform- Addressing culture requires a structured way to target a broad range of issues across organizations. Depending on their experiences with conduct or related cultural issues, banks are at markedly different stages of developing comprehensive initiatives to address culture. A holistic approach begins with clearly defining objectives and desired outcomes. Banks are also developing new approaches to measuring and monitoring culture and informing and engaging the board. Ultimately, the board should be asking: Is the firm communicating the right message and setting behavior standards? Has the firm established an environment that supports the desired culture, including clear accountability and governance? Is transparency and escalation encouraged? Does the firm provide the right motivation and incentives?
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