I think it’s pretty safe to say – after one reads the newspaper on any given day – that we may be at a low point of confidence and trust between the public and the financial sector – with a series of high profile events over the past 18 months that raise issues of both basic compliance with laws and regulations and of governance and culture in firms and in the system more broadly. Culture can be a complex topic – and I know it’s one that firms are spending a lot of time thinking through and trying to figure out how to ensure a strong culture. As we are thinking about it, we’re asking ourselves a series of questions – and I thought I’d share a couple of these with you as food for thought on this topic. Culture starts at the top of the organization – “the tone at the top” •  Do the directors/CEO set the right tone for behavior at the organization? •  Is there effective challenge and debate at the board meetings/committee meetings? BIS central bankers’ speeches  5  •  Do personalities interfere/get too big within the company for effective risk management? •  What’s the dialogue like between supervisors and the firm? In a strong risk culture, incentives within the firm set the right expectations for behavior. •  How are audit and supervisory findings handled? •  Does the performance management system reward both good behavior and punish bad behaviors or lapses?
But one thing I’m certain of is that a lot has changed in those five years – and much of it for the positive in terms of addressing some of the key weaknesses that led to the crisis. Where progress has been made I thought I’d start first by reflecting on several areas where we’ve seen progress. Importantly, the balance sheet repair that was necessary is underway. •  Banks are building capital – both the quantity and the quality of capital have improved markedly in the past several years. For example, by some measures, the largest banks in the U.S. have more than doubled capital levels over the past four years. •  Banks are also building liquidity, and liquidity levels far exceed those that most firms had going into the crisis in 2008. •  While progress on both fronts is somewhat uneven across jurisdictions, there are efforts underway, including through such mechanisms as the Basel rulemaking process and EU initiatives, to continue to make bank balance sheets more resilient to stress in the future. In the area of recovery and resolution, with the second round of plans in for the largest firms (and the first round in or due shortly for the remaining firms), a lot of learning has happened through this process.