The Culture Cure

In an article published in the Mercer Law Review late last month, David Lourie, Assistant Professor of Law at the University of Detroit Mercy School of Law, argues that US financial regulators must move beyond enforcement-driven oversight and adopt proactive culture assessments.

Lourie draws on the bank failures of 2023 to illustrate a recurring blind spot: cultural deterioration frequently precedes and amplifies technical breakdowns, yet regulators typically detect governance failures only after the damage has occurred. Culture assessments, he argues, offer a preventive alternative for supervisors to examine how firms think, behave, and make decisions, rather than simply punishing them after things go wrong.

Importantly, the goal is not to prescribe a “good” culture, he emphasizes. Instead, it is to assess alignment — whether a firm’s stated values are reflected in actual behavior — and to determine whether that alignment supports sound governance and risk management. The framework Lourie proposes is deliberately incremental. It begins with voluntary, partnership-based initiatives before integrating culture lightly into existing supervisory examinations, scaling up only where persistent governance weaknesses warrant closer attention. Much of the assessment burden should rest with firms themselves, he explains, with regulators setting expectations, reviewing outputs, and selectively verifying results.

Drawing on comparative analysis and original fieldwork with regulators including De Nederlandsche Bank, the UK Financial Conduct Authority, the Australian Prudential Regulation Authority, and Canada's Office of the Superintendent of Financial Institutions, Lourie makes the case that culture supervision is both legally feasible within existing US statutory authority and scalable to large, complex markets.

“Incorporating culture assessments into U.S. financial regulation is a necessary evolution of an overly legalistic, reactive supervisory model,” he writes. Culture supervision, Lourie asserts, offers a way to engage earlier in the risk curve, expanding the regulatory toolkit without compromising legal rigor. “The future of effective regulation will not be written in rules alone, but also in the cultures they foster — and the failures they prevent,” he concludes.