However there continues to be a lot of mixed views around how the changes can and should be initiated and implemented. The interconnectedness of the industry has resulted in the public viewing the industry as “one.” Therefore, I believe to address the tarnished reputation of the industry as a whole in a credible and sustainable way, firms must be willing to address it with a unified front. 6  BIS central bankers’ speeches  Culture is a bit of a nebulous concept that tends to go unattended. Accepting that cultural change is a necessity, not a “nice to do,” is the first step in a long road that will require the participation of management, boards and every employee on your payroll. The culture within the organization will guide the behavior of employees, particularly when there are shades of gray. Therefore, if organizational values and norms conflict with the rules or guidance you are required to follow, the organization is headed for trouble. The failure to understand the purpose of a law or regulation may lead one to adopt an overly technical or game-like approach to compliance. Left uncorrected, this type of compliance arbitrage can fester and lead to micro-cultures lacking in respect for law. The recent enforcement actions addressing sanctions violations offer prime examples of this unfortunate and costly phenomenon. Last week we hosted a workshop on “Reforming Culture and Behavior in the Financial Services Industry” at our offices downtown.
I will share some of the challenges we see in the road ahead as the industry continues to adapt to and implement necessary changes. And then I’ll finish with a brief discussion of two of the issues that keep me awake at night. Progress to date Three years ago, I encouraged you to acknowledge that it is impossible to predict the nature or timing of a future crisis event. I posed a question about what a financial system better prepared to weather all storms would look like. As financial institution supervisors and as leaders of financial institutions, we all knew we needed to be better prepared for crisis events, whatever their character, source or timing. Since I made those remarks, a number of stress events have reinforced not only the need for continued substantive changes in firms, but also the benefits of the changes we have made so far. 1. Starting first with what has been accomplished to make financial firms – and the system – more resilient today to future shocks. First, in the area of capital resiliency, as a result of both new bank capital standards and our new stress testing regime, bank capital levels and the quality of capital have increased significantly – and on some measures, nearly doubled from pre-crisis levels. The banking system has more capital and, thus, a better ability to withstand stressful events when they arise.