Behavioral risk refers to behaviors within an organization that could potentially lead to negative business outcomes.3 In such organizations, behavioral risk is not effectively mitigated or even considered, and the stated values of the firm are not reflected in the actions and norms of the organization’s members. Group think is prevalent and employees do not speak freely, or are ignored, when they have concerns about the way their group is doing business. The letter of the law may be followed but not the spirit, with illegal activities only coming to light when discovered by authorities. “Conduct” is viewed as something that is only the responsibility of the compliance department through a set of rules and controls. The outcomes stemming from high behavioral 1/5  BIS central bankers' speeches  risk reduce cultural capital, damage the firm and the trustworthiness of the industry over time. In an organization with a high level of cultural capital, on the other hand, behavioral risk is low. Employees refrain from taking excessive risks and they are unafraid of – and rewarded for – raising issues up the management chain. When they speak up, they believe the organization will take them seriously with meaningful responses. The organization recognizes and rewards employees who understand and internalize the expectations of laws and regulations, and do not view compliance as a checklist. In organizations with a high level of cultural capital, an important factor in advancing to senior leadership is role-modeling behavior consistent with a firm’s values, assumptions and behavioral norms.
The market for these securities had dried up because the traditional investors in these securities – SIVs, bank-related conduits and securities lenders – have either disappeared or are balance sheet constrained. This has reduced the availability of credit for consumers and led to higher borrowing costs. The first subscriptions for financing under TALF Version 1.0 will occur on March 17. The first batch of new securitizations will be funded on March 25. TALF Version 2.0 will follow. This will broaden the TALF into new asset classes such as Commercial Mortgage Backed Securities. Development of this phase is still in its early days. But it anticipated that the size and scope of TALF will expand sharply in the months ahead. So how will the TALF restart securitization activity and provide balance sheet capacity to the private sector? By providing leverage and 3-year term, non-recourse financing to investors, the TALF should increase the demand for AAA-rated securitizations. Yields of LIBOR + 400  4  BIS Review 28/2009  basis points may not be sufficiently attractive on an unleveraged basis, but at 10 times leverage the returns become very attractive. The non-recourse nature of the loans is also important. If the price of the security falls considerably, the investor just loses an amount equal to size of the haircut.