NY Fed Executive Alberto G. Musalem Calls on Banking Industry to Promote a Positive Culture

Federal Reserve Bank of New York ("NY Fed") Executive Vice President Alberto G. Musalem outlined NY Fed initiatives to promote a positive banking culture. Mr. Musalem explained that the initiatives are a response to recent incidents of misconduct, including a case involving the manipulation of LIBOR. He also stressed that the "responsibility to address these flaws" in the "culture of banking . . . rests with the banks themselves."

Mr. Musalem described the NY Fed's message to the banking industry as follows: (i) cultural problems are the banking industry's responsibility to solve, (ii) a bank's implicit norms - especially those reinforced through incentives - must align with the public purpose of banking and (iii) the aim of reforming bank culture should be to restore trust.

Mr. Musalem also referenced the following "insights" from a previous NY Fed workshop:

• culture is a soft concept that is hard to measure, and perhaps even harder to manage and sustain, but it is as important to the industry as capital and liquidity;

• a bank's culture must reflect public expectations and promote considered behavior toward the firm's many stakeholders, including those who are part of the public;

• managers at all levels must take action to promote a greater sense of personal responsibility and stewardship among employees;

• sharing best practices across the industry could help firms to identify the common warning signs of problems within sub-cultures, as well as behavior that is incompatible with the firm's values;

• diversity of thought and background are valuable cultural assets because they generate better questions and decisions to contribute to effective challenge; and

• certain basic principles - such as the fair treatment of customers and employees - cannot be open to debate.

Mr. Musalem delivered his remarks at an event titled "Towards a New Age of Responsibility in Banking and Finance: Getting the Culture and the Ethics Right." The event was hosted by the Goethe University of Frankfurt's Institute for Law and Finance.