Banks must change corporate culture to win back confidence

THE scale of bank regulatory reforms in recent years has been unprecedented, but public trust remains low. While lenders have taken actions to boost capital, reduce leverage and strengthen liquidity, many banks have not shown the same commitment to adjusting their core culture, including their risk culture, to address key weaknesses.

There needs to be a vigorous public discussion about cultural changes in financial institutions and now, finally, this is starting to happen. The Financial Stability Board, as well as national regulatory and supervisory authorities on both sides of the Atlantic, are likely to insist on reforms to instil better behaviour at banks.

Today, however, too many people at the helm of many banks have still not adequately recognised that a deficiency or failure of culture, including reputational risks, can be as destabilising - or more so - to an institution than problems of capital or liquidity. Culture is about behaviour. It is about how individuals and groups act even when they are not being observed. A good culture underpins and is reflected by the actions of a company's employees. The cultural tone of a firm is set by the actions of the chief executive, his or her top management colleagues and the board of directors, while being reflected in the actions taken daily by middle management and right down to the teller level.