Global banking outlook: 2013-14
Shifting the internal culture
Staff must be encouraged to report and escalate issues early--not bury them.
For many banks, the scale of the transformation required will resemble the turnaround of a business in distress.
Boards and senior management must align staff behavior with new strategies and risk appetites. Communication is obviously crucial, especially explaining the practical effects of changes. Staff must be encouraged to report and escalate issues early--not bury them.
As the IIF/Ernst & Young 2012 risk management surveyshows (see chart below), it is crucial to resolve potential conflicts between the sales-driven front office culture and the risk culture.
Restructuring compensation models, as many banks are demonstrating, will help, but there could be a temptation to over-correct. Pre-crisis bonus levels may not be justified, but banks still need to protect their franchises and retain key staff. Long-term reward structures are likely to increase.
Top challenges to strengthening the risk culture
Source: Progress in Financial Services Risk Management, IIF/Ernst & Young, 201