In a just-published article in The Banker, Stuart Mackintosh, Executive Director of the Group of Thirty, and Starling Founder & CEO Stephen Scott call for global collaboration on developing new tools and techniques for firms and their supervisors to assess organizational culture and non-financial risk management.
Mackintosh and Scott reference Good Supervision: Lessons from the Field, a recent paper published by the International Monetary Fund (IMF) that echoes assertions that this year's bank failures stemmed from deficient risk management and governance. This reinforces the need for more effective supervision of firms' capabilities in this regard, the IMF argues.
However, matters of risk management and governance, especially those relating to non-financial risk, are notoriously difficult to assess. Mackintosh and Scott emphasize the need for collective action to explore new "SupTech" methods by which firms, and their overseers, can evaluate such risks. "[T]hese technologies offer supervisors a means by which leading indicators of non-financial risks may be identified, system-wide, on a near real-time basis, positioning them to engage proactively in hopes of avoiding future crises," they write.
This would not serve to replace supervisory judgment, but augment it. Such data-driven metrics would allow for horizontal peer review across the industry. They would also enable supervisors to take proactive steps to prevent future bank failures by making the hidden but potentially systemic risks associated with firm culture tractable.
"Culture is alternatingly pointed to as culprit or cure when risk governance and the supervision thereof are found wanting," they conclude. "If assertions in either direction are to be credible and actionable, assessing cultural drivers of performance outcomes effectively must become a policy priority."