“Governance is at the heart of supervision,” Elizabeth McCaul, a Member of the Supervisory Board of the European Central Bank notes in the opening Preamble to this report. [See also the Preamble to the 2024 Compendium] “Inadequate governance and risk management are a recurrent theme underpinning virtually all bank failures,” she writes, adding, “The events of last year show how ‘intangible’ non-financial risks can result in very tangible financial losses.”
“Bank governance and risk culture are closely intertwined,” Ms. McCaul continues, defining risk culture as “the collective mindset and the shared set of norms, attitudes and behaviours related to the awareness, management and control of risks at all levels in a bank.” It is this that “shapes the day-to-day decisions of management and staff and affects their risk-taking behaviour.” And while tone from the top is important, McCaul argues that there are more important, structural considerations.
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