On December 7, 2017, US Federal Reserve Bank of New York Executive Vice President Kevin Stiroh spoke at a culture roundtable session regarding misconduct, risk, culture, and supervision. The remarks were based on a white paper that was published the same day. Mr. Stiroh's remarks focused primarily on employee misconduct risk in the financial services industry, noting that since 2008 financial institutions have paid over $320 billion in related fines. Mr. Stiroh also highlighted the damaging effect that employee misconduct has not only on the employer and financial institutions, but also on the financial system as a whole. Mr. Stiroh contended that misconduct is the result of low cultural capital—a confluence of processes and procedures, stated values and senior management and employees who are empowered to reinforce and conduct their day-to-day activities in a manner that promotes a culture of compliance. Mr. Stiroh also suggested that a lack of cultural capital may be the result of market failures brought about by factors such as externalities, principal-agent problems and adverse selection, arguing that one possible means to remedy these issues is through internal supervision; with supervisors willing to support a culture of compliance, close gaps in rules and advance the value of safe and sound practices. To this end, Mr. Stiroh highlighted to the attendees the important role that supervisors play in maintaining high levels of cultural capital at financial institutions.
Mr. Stiroh's speech is available at: https://www.newyorkfed.org/newsevents/speeches/2017/sti171207 .
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