Issues like misconduct risk and culture likely fall in these gaps because they involve the attitudes, norms, and behaviors and suggest a critical role for supervisors in addressing these risks. Conclusion To conclude, misconduct risk poses clear threats to both prudential and financial stability objectives. The work supervisors do to address misconduct challenges is critical because there are limits to the regulatory or deterrence and enforcement approach. To understand how a firm manages misconduct risk and to improve resiliency and reduce the potential for unwanted disruptions to financial intermediation, we must increase our focus on firms’ decision-making practices and behaviors as a core aspect of good governance. We can draw from the growing literature about the root causes of misconduct and the underlying factors that drive unhealthy cultures to support this goal. However, as I am sure you already appreciate, addressing culture reform across an entire industry is a complex challenge and there is no one action or approach that will fully address it. We all must be willing to work at this from our various vantage points, as supervisors, as academics, and as industry participants. As you reflect on the conversations you have had today, the points that were raised, and the potential paths forward, I encourage you to consider the important role you each play and the potential impact we, collectively, can have by working together toward the ultimate goal of ensuring a safe and sound financial system that supports economic growth and stability.
The impact of employee misconduct extends beyond the individual and can impact the firm as a whole, as well as the economy and financial markets more broadly. That is, misconduct risk has both prudential and financial stability implications. For a firm, employee misconduct can make it less resilient by diverting management attention, by harming the firm’s reputation in a way that impedes its business, by driving adverse change in the composition of the workforce, or by depleting its capital through losses or fines. Since 2008, 1/5  BIS central bankers' speeches  for example, firms have paid, in aggregate, in excess of $ billion in fines related to misconduct.2 For the broader economy and financial markets, misconduct can inflict harm directly on consumers and employees. In addition, over time, market participants may lose confidence in the financial sector as a whole and adversely impact the sector’s critical role in financial intermediation. In 2016, for example, Gallup found that confidence in the financial sector had fallen by half over the previous decade.3 These incidents of misconduct can introduce frictions and raise the cost of financial intermediation, which in turn, reduces the flow of productive financial services. These sorts of external effects that spill over to other firms, consumers, and businesses are a critical rationale for official sector intervention related to employee misconduct. In the U.S., official sector concern with the damage inflicted by employee misconduct dates back to the Banking Act of 1933.