Not Only a Corporate Matter: Bank Supervision Confronts Culture Issues of Its Own

Maintaining effective culture, in risk and other management contexts, has long been a concern of regulators and the organizations they supervise. Now the supervisors and their processes are coming under scrutiny..

The 2023 collapse of Silicon Valley Bank (SVB) turned a spotlight on the performance and practices of supervisors and how they relate to the banking system’s safety and soundness.

“Culture is not only a matter for the supervised; it is a matter also for supervisors,” wrote Randal Quarles and Stephen Scott in the opening letter of Supervisors on Supervision, a report released in April by Starling Insights. Quarles, the Federal Reserve Board’s vice chair for supervision from 2017 to 2021, is the study chair. Scott is founder and CEO of Starling.

Randal Quarles

Supervisory culture “was repeatedly implicated in failures of oversight,” they asserted, adding, “Culture-driven weaknesses can threaten safety and soundness. They can impair the supervisory function . . . But there is a still broader point that must not be lost: Supervision is an exercise of public authority, and where that authority cannot explain how it sees,...