Organisational culture and bank risk

Existing research has largely relied on employee surveys to measure organisational culture despite the significant shortcomings of this approach. We use multiple, unobtrusive sources of data to gain rich insights into bank culture without ever having to ask employees to ‘show us your culture’. Our measure is based on 20 individual indicators from six different sources, including information on internal fraud cases, customer complaints, and the quality of regulatory submissions. We use this data to investigate the hypothesised relationship between organisational culture and bank risk. We find robust evidence that poor culture leads to substantially higher risk, demonstrating the importance of bank culture for prudential outcomes.