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As we have heard from other speakers, governance and culture cover many aspects, including the composition of boards and the responsibilities and qualifications of their members. There are also broader issues, such as the factors that shape a strong culture and the relevance of culture in the current industry environment.
I am speaking to you today in my role as a banking supervisor – as Vice-Chair of the ECB’s Supervisory Board. And I want to talk about the role of the supervisor, which has been subject to some debate recently.
The ECB assesses behaviour and culture in the banks it supervises. This forms an important part of our overall supervisory assessment.
First, I will explain why we look at behaviour and culture in banks. Then I will set out how we do so – what tools we use and what we assess – before discussing some of the challenges and sketching out a possible way forward. I will argue that supervising behaviour and culture in banks is sometimes even more challenging than the traditional focus of banking supervisors – quantitative metrics, but it is all the more important that we rise to this challenge. Because while balance sheets are often scrutinised with a hawk’s eye, it is often culture that whispers the first signs of trouble.
The starting point for talking about culture in banks is one that we should all agree on – acknowledging that banks are not just edifices of glass and steel, like the skyscrapers here in the centre of Frankfurt.
Nor are they just balance sheets, Common Equity Tier 1 ratios and liquidity buffers.
Rather, banks are complex organisms driven by the sum of their human interactions and decisions.
And it is a bank’s culture that flavours these interactions.
Culture encompasses the collective mindset and the shared set of values that shape the everyday behaviour of a bank’s employees. It is not just a trendy buzzword. It is in the DNA of how a bank functions and how it manages risks.
Behaviour, on the other hand, is the tangible manifestation of this invisible culture. It is directly observable in a way that culture is not. Behaviour is the product of the collective ethos, the sum total of attitudes, norms and practices embraced by the denizens of the banks.
I want to suggest today that culture is often the invisible hand that nudges employees towards either prudent risk management or reckless behaviour. It is the undercurrent that determines whether compliance considerations are seen as mere adornments or as important guiding principles...
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