By Michael Aiyetan
Over the years, improper risk practices have created serious and costly incidents in banks, and poor risk culture has been identified as the root cause. The effort to rebuild trust cannot be over-emphasized and separated from risk culture, as it is critical to protecting customers and meeting the banking needs of our communities.
Shared values that make up risk culture emerge from the risk decision-making process and communication protocol. Culture expresses itself mainly in decisions and communication. In other words, culture influences decision-making, and a healthy decision-making process nurtures culture. Culture evolves from communication, and communication shapes culture. Banks must take the steps necessary to identify, measure, monitor and control business decisions and internal communications across the enterprise for a sound risk culture.
People make a flood of decisions every day, and a few studies have heightened the need for banks to implement check and control systems for all business decisions. For example, Brian Wansink and Jeffery Sobal of Cornell University estimated that we make over 200 decisions each day on food alone, and we are aware of only a fraction of these decisions. Also, Grant Pignatiello et al. of Case Western Reserve University indicated that making decisions may negatively affect the quality of subsequent decisions. In essence, people’s minor decisions—from deciding to commute to work in a carpool in the morning to picking which toppings on a sandwich at lunch—deplete the energy needed to make critical decisions. Therefore, there is a strong tendency for impulsive and irrational decisions to cross the boundary from people’s personal life into the workplace.
The imperative of a systemic process
Banks strongly need to establish a systematic process for identifying and assessing all business decisions to foster risk culture. The risk management process should begin when a business need is…