And, going forward, are we thinking hard about how technological change will influence incentives, behavior and culture? We’ll hear these issues discussed in several panels today. These issues require thoughtful reflection by the industry. The need for reflection, though, is not limited to boards, or even to banks. Regulators and bankers alike can benefit from such a habit. In that vein, I want to share with you an everyday checklist proposed by Ignazio Angeloni of the European Central Bank.7 He has posed six questions that seek to make responsibility for culture both individual and routine: Are you doing what you promised to do? Are you using your best knowledge and intention in doing it? Are you doing what public authorities, superiors, colleagues and business partners expect you to do, and if not why? Are you conforming to the mission and the values of your company, as they are publicly 2/3  BIS central bankers' speeches  stated? Will your actions enhance public confidence in your company and in the financial sector? Finally, and crucially, would you behave similarly if your actions were publicly observed? I suspect that while seemingly simple, the discipline of asking ourselves these questions on a regular basis and answering them thoughtfully and honestly may be more challenging, thought provoking and effective than one might initially think. I thank the staff at the New York Fed who put together today’s program, and their colleagues who are in the audience and watching today.
To put it very simply, incentives drive behavior, and behavior establishes the social norms that drive culture. If the incentives are wrong and accountability is weak, we will get bad behavior and cultures. This implies a role for both firms and supervisors. Firms need to continually assess their incentive regimes so that they are consistent with good conduct and culture. When they are not consistent, the incentives need to be changed. Supervisors should also play a role in assessing firms’ incentive structures. For example, they should evaluate: 1/3  BIS central bankers' speeches  How is compensation determined? In particular, is questionable conduct―such as compliance violations―consistently reflected in decisions about compensation and promotion? Do risk managers have the appropriate authority to challenge frontline revenue producers and prevent activity that is questionable? When that occurs, are there appropriate negative consequences for the frontline revenue producers? When people speak up to point out potential conduct issues, how are they treated? Are they held up as examples to emulate, or are they discouraged or even penalized? The answers to these questions should indicate whether incentives must be changed in order to foster the appropriate behaviors and culture. The primary responsibility for reforming culture—and changing incentives—belongs to the industry. However, the industry does not act alone. The public sector can play an important role as well. I’ll discuss that issue this morning with my colleagues Norman Chan, chief executive of the Hong Kong Monetary Authority, and Minouche Shafik, deputy governor of the Bank of England.