14  Report of the Swedish National Audit Office 2011, “Measures taken by the authorities to safeguard financial stability: Lessons in the light of developments in the Baltic countries 2005–2007”. BIS central bankers’ speeches  7  Recent developments in North Africa and the Middle East have pushed up the price of crude oil even further. Uncertainty about the future supply of oil has contributed to the oil price now being higher than it was when the Monetary Policy Report was published in February. This illustrates the fact that price trends become even more sensitive to supply disruptions when demand is high in relation to supply. The earthquake in Japan is the greatest catastrophe the country has suffered since World War II. The consequences for the Japanese people are devastating and the material damage is huge. It is still too early to determine what the economic consequences of the earthquake will be. In the short term it has already led to production losses, but later this year production may rise in connection with reconstruction work following the disaster. The fact that some nuclear power stations are now out of operation has already led to disruptions in the supply of electricity and in production, but in the longer term a reduction in the capacity to generate electricity using nuclear power in both Japan and other countries may lead to rising prices for other types of energy, including oil.
Culture is at the heart of many of these issues, and addressing the root causes of misconduct must remain a high priority for the industry and regulators. The Supervisory Approach Given this imperative for change, the question is, what can we do to improve culture in financial services? Culture is like many of the risk management issues challenging businesses. Cyber threats, digital transformation, and climate change are all facts of life that companies face today, and will be facing 10 years from now. But I don’t hear any CEOs saying that securing their servers is a project that can wait until 2029. Nor does anyone think that there are “once and done” fixes for these problems. Indeed, one important lesson from cybersecurity is that this is not purely a technology problem, but one that requires a fundamental shift in mindset and culture over the long term. So the first thing is the industry, the regulatory agencies, and the banks need to take culture seriously, now. A major and essential part of this is that there must be meaningful consequences for firms and people when things go wrong. We have learned that simply levying large fines on companies is not enough to create lasting change. More is needed. Regulators must hold management and boards of directors to account. The legal element of supervision will always remain paramount. And a scandal often spurs change. But if leaders wait until things have gone wrong to think about culture, they’re leaving it too late.