US Fed Governor Offers a Perspective on Culture

In a speech delivered this past weekend, Michelle W. Bowman, a Governor on the US Federal Reserve Board, discussed the changing economic and banking environment, arguing that attention to the culture of both firms and regulators will be essential to navigating it.

"We must not lose sight of the lesson that cultural problems at both banks and regulators can compound cyclical downturns in the banking environment and pose more serious risks to the banking system," Bowman said. “Cultivating a positive culture, one that values accountability and the contributions of both management and staff to an organization's mission, can serve as a buffer against future stresses.”

Bowman argued that a sound culture drives a sense of ownership and collective purpose. Such a culture leads the bank's board, executives, and employees to work together in support of the organization's purpose and mission. "Bank culture can have a strong influence on both business outcomes and on compliance and risk-management outcomes," she said. Bank leaders are responsible for developing their organization's culture. As a part of this effort, Bowman explained, they must empower employees to speak up about and escalate business, risk management, and compliance concerns.

"Regulatory agency culture can be similarly impactful in shaping bank regulation and supervision to promote safety and soundness and consumer compliance in an effective and efficient manner," Bowman said. While regulators certainly have less flexibility than the industry regarding their strategic mission and objectives, which are prescribed by statute, they do have flexibility in their execution. "Culture plays a significant role in how well bank regulators pursue their statutory objectives and the manner in which they perform the related mission," she contended.

In an article for Starling Insights' recent 2024 Compendium, Michelle Bowman argued that banking sector overseers should hold themselves to the same high standards of conduct they encourage in the industry — and that they must do so in a manner independent of political pressure and mindful of public accountability.  ▸ Read More