A Starling Insights Deeper Dive Report

Supervisors on Supervision

— Closing Comments to Chapter One —

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When supervisors talk about culture, we are not reaching for soft concepts to round out a technical brief. We are addressing a set of behaviours and decision habits that can and do become manifest in financial risk. 

That has always been true. What has changed is the pace at which those decisions and behaviors can migrate into balance-sheet stress, reputational damage, and — ultimately — loss of confidence. And in a business that is wholly reliant upon confidence, this is a prudential issue.

The opening chapter of this report seeks to frame the continuing conversation by untangling the many ways supervisors currently describe culture in relation to risk, and why, if left unaddressed, that discord represents a risk to supervisory credibility. 

• We started by separating culture from its proxies: values statements and slogans, leadership competencies and control frameworks that may be good tools or practice but are no substitute for what actually drives what people do day-to-day. 
• We examined divergent approaches across jurisdictions over time, different definitions in use, different appetites for supervisory discretion, different ways of integrating culture into risk frameworks. 
• And we looked closely at what happens when we avoid the subject of culture: allowing it to be examined only in hindsight, amidst the wreckage of what may have been avoidable failures. 

The conclusions I draw from the global stocktake reported upon here are straightforward. 

First, definitions and scope remain uneven. Supervisors use the term “culture” to mean different things, often in the same discussion. Some emphasize the upstream drivers of behavior (norms-in-use, incentives, accountability); others emphasize the downstream risk-management habits (challenge, escalation, control routines). Some frame culture as “non-financial” — which can imply it sits outside a prudential remit — even though experience shows culture serves as a leading indicator of both conduct and prudential outcomes. This lack of clarity does not just frustrate taxonomies; it affects what gets examined, escalated, and acted upon.

Second, the prudential and systemic relevance of culture is widely recognized, even if treated unevenly. Participants in our stocktake consistently describe how cultural patterns correlate with client harm, control failures, reputational overhangs, and funding stress. The debate is no longer whether culture matters to safety and soundness; it is how to bring it into supervisory view in a way that is fair, consistent, and useful.

And third, supervisory credibility is at stake. When supervisors struggle to clearly articulate the link between culture and risk, and lack clear ways to measure and describe culture, their assessments can be seen as impressionistic or moralistic. This leads to resistance — informal at first, legal and political later. That risk is not hypothetical. If we cannot explain what we looked at, what we found, and why it matters — in language boards can act on and courts can test — confidence in supervisory judgment will erode.

From that mapping, five anchor points for the rest of the report emerge:

• Speak clearly, then supervise clearly.

What sits under “culture” for supervisory purposes must be described in operational terms: the behaviours that reliably influence safety and soundness and fair treatment. The stocktake confirms that when supervisors are explicit — about tone and accountability at the top, about how decisions are actually made and challenged, and about peer-relative outliers — the discussion improves, and so do the outcomes. 

• Judgment will always be necessary — but it must be explainable.

The stocktake makes plain that rules and models alone will not keep up with change. Supervisors must act under conditions of uncertainty. The message that emerges from this chapter is not to remove judgment, but to support it: to articulate what we looked at and why we reached a view, in a way that can be compared across firms and across time. 

• Coherence matters.

We do not need uniformity to make progress, but we do need a coherent way of talking about culture that lets supervisors and firms recognize the same phenomena when they see them. Coherence is also the best answer to the growing scrutiny of “subjective” components of supervisory assessments. There are legitimate concerns sounded in that debate: interests in consistency, proportionality, and due process among them. We can meet those concerns with better design and by being honest about how much inconsistency we are willing to tolerate — and how much we are asking others to accept.

• We must embed independent challenge. 

Our supervisory frameworks already include elements designed to reinforce consistency and fairness, but we need to make sure we use them and adapt them. Supervisory decisions can have a meaningful impact on a firm. That is how it’s meant to work. Recognizing that judgement plays a key role in those decisions, we need to be transparent and open to constructive challenge. Indeed, we should welcome and facilitate it. 

• Fragmentation has real costs

The current environment is bringing increased risk of fragmentation. When regulatory regimes diverge, the playing field is no longer level, the costs of compliance climb, and the opportunities for arbitrage increase. History has taught us the value of cross-border consistency and coordination. Our judgments should be comparable across firms, geographies, and time, and they should be framed in language that a board can act on, and a court can test. Most importantly, they should be clearly tied to the supervisory objective: safety and soundness, and the protection of trust.

Supervision is, by necessity, forward-looking. We act before perfect information arrives and we’re always dealing with uncertainty. The last decade taught us that stronger capital and liquidity are essential preconditions for resilience. The next decade will test whether we can be equally disciplined about culture. As I argued a few years ago: if the last decade of bank supervision was about designing rules that lead to more resilient bank balance sheets, the next will be about designing supervisory tools and strategies that lead to more resilient bank cultures. If we bring more discipline to how we judge culture, more clarity about what we see, more consistency in how we respond, more transparency about how we judge, we will not eliminate uncertainty. But we will perhaps do something more important: we will show that we can act under uncertainty in ways that are fair, explainable, and effective.

Culture is a prudential concern because confidence is a prudential asset.

Finally, partnership matters. Supervisors do not have a monopoly on insight into culture and norms of behavior. We need the help of firms that are willing to open the black box of decision-making, investors who can articulate how culture affects their risk assessment and valuation, technologists who can build tools we can explain, and academics who will test what we believe we see. We also need the convening power of standard setters and international bodies, because the firms we supervise are international, and so are the risks. 

The consequences of failure go beyond the fate of any individual institution and often beyond the border of any one jurisdiction. We have all seen how a string of conduct failures can become a reputational overhang, and how reputational overhang can become liquidity risk when confidence thins. That sequence is not hypothetical; it is a well-established pattern. Culture is a prudential concern because confidence is a prudential asset.

Carolyn Rogers was appointed Senior Deputy Governor of the Bank of Canada in December 2021, for a seven-year term. Previously, she was Secretary General of the Basel Committee on Banking Supervision. She served as Assistant Superintendent, Regulation Sector, at the Office of the Superintendent of Financial Institutions (OSFI) from 2016 to 2019, where she was responsible for policy-related functions, including capital, accounting and legislation.

She was Superintendent and CEO of British Columbia’s Financial Institutions Commission (2010-2016). She also served as Chair of the Canadian Council of Insurance Regulators and was a founding member of the Credit Union Prudential Supervisors Association. Earlier in her career, she worked in executive positions in the private sector and in financial services at credit unions and a major bank.