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The Cultural Revolution in Risk Management

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Abstract

Following much debate among regulators and in society more broadly, it is now widely acknowledged that inadequate risk culture was a key contributor to the global financial crisis of 2007—08 and more recent corporate banking scandals. While there is now a growing consensus that something must be done to address behavioral risks, uncertainty remains around what exactly is meant by “risk culture” and how to “strengthen” risk culture. In this paper, we provide some clarity around the concept of risk culture, and propose a model and approach for assessing and strengthening it. The basis of our model is that risk culture is not static — it can be managed and shaped to provide a competitive advantage, allowing a company to achieve its objectives within the stated risk appetite.

Suggested Citation

  • De Jonghe, Frank & Edelsten, Mark & Xavier, Isabel, 2013. "The Cultural Revolution in Risk Management," Journal of Financial Perspectives, EY Global FS Institute, vol. 1(1), pages 179-187.
  • Handle: RePEc:ris:jofipe:0012
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    Cited by:

    1. Power, Michael & Ashby, Simon & Palermo, Tommaso, 2013. "Risk culture in financial organisations: a research report," LSE Research Online Documents on Economics 67978, London School of Economics and Political Science, LSE Library.

    More about this item

    Keywords

    Risk Culture; Risk Appetite; Financial Services; Behavioral Risk;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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