Supervisors on Supervision

“We often conflate values and culture — using terms like integrity, transparency, inclusivity. This leads to backlash when regulators are seen to impose values. When culture oversight is framed in values-laden language, it opens supervisors to charges of ideology rather than risk governance. In today’s political climate, this undermines legitimacy.”

“What we label ‘non-financial’ risks — culture, conduct, accountability — are often deeply financial in impact. The problem lies not in the risk, but in the measurement.”

“Supervisors must strengthen their cultural oversight, not just for institutional efficacy, but to preserve public confidence in their relevance and restraint.”

“We still struggle to define what good is and what bad is, except in hindsight. We analyze failure rather than anticipating it. 

Almost all our examples are retrospective — Lehman, Enron, Wells Fargo. This reinforces the myth that culture is ineffable — only visible in retrospect.”

“Supervisory discretion that is not grounded in clearly defined risk-related criteria may be interpreted as ideological overreach — eroding trust and exposing supervisors to political challenge.”

“If culture supervision is to be legitimate, it must begin at home. Supervisors must first discipline their own frameworks — what we define, how we measure, and how we communicate expectations.”

“Rules and standards are a necessary part of an effective regulatory regime but they will never keep pace with change and human ingenuity. We know this because time after time, when a crisis happens, we find that someone found a way around the rules and the risk management culture didn’t detect or stop the behaviour before it was too late.”

“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. 

And the goal in the decade ahead must be for banks to improve their risk culture and operational resilience by at least the same margin as they have improved their financial resilience in the decade past.”

“Over my career, I learned to mind the clear line between conduct supervision, or the fair treatment of consumers, and prudential supervision, or financial safety and soundness. Finally, for most of my career, I could define what a bank was, and what it was not, and by extension, what my responsibilities as a bank supervisor were. 

Each of these bright lines seem to be rapidly disappearing. Banks and banking are increasingly diverging. Conduct and prudential risks on the other hand, are increasingly converging. Combined, these trends mean that the legislated mandates given to many supervisors can leave them ill equipped to be a good referee or to meet public expectations. 

This evolving landscape requires us to think differently about the job of bank supervision. More forward-looking supervision and a greater willingness to use judgement and to act without perfect information will need to replace the dominant focus on rules and standards.”

“Supervision must escape the ‘hindsight trap’ by building forward-looking methods to assess cultural risk upstream, before failure materializes.”

“Phrases like ‘tone at the top’ risk reducing culture to optics or slogans. The real supervisory challenge is diagnosing the operating culture at all layers of the institution.”