Bill Dudley past President, Federal Reserve Bank of New York

Contributions to the Supervisors on Supervision Stocktake

1.1.1 - What does culture mean in the supervisory context?

1.1.1a There is recognition among stocktake participants that culture lacks a commonly agreed-upon definition, which makes it difficult to understand or to discuss, let alone to assess.

“I think the problem you’re getting at is: what is the authority under which the supervisor or regulator can argue that culture is part of their purview? 

It’s sort of a soft concept. That’s what people are unhappy with. I get that. I mean, what is culture, exactly? That’s one of the challenges. 

Since culture is pretty hard to identify and evaluate — and behaviors are also hard to evaluate — it’s difficult for supervisors to be confident that what they’re doing is going to meaningfully move the needle in terms of outcomes.” 

So I've backed away from ‘culture’ as the way I talk about this. I talk about it more in terms of incentives. We need to have the right incentives in the system because incentives drive behavior, and behavior sets the social norms. And then that collection of social norms ultimately defines what we call culture.

So the culture is the end of the road rather than the beginning of the road. And that puts culture as less central. It’s sort of the result of all this. 

But the social norms are what we really need to be working on. And the incentives to shape those social norms are what we should be working on. And I think that makes it a lot more tangible.” ⇒ Link to Report