The 2023 Banking Turmoil: One-Year Anniversary Analysis and Lessons Learned

Yesterday, the International Institute for Finance [IIF] presented a panel discussion on The 2023 Banking Turmoil: One-Year Anniversary Analysis and Lessons Learned – reflecting on the collapse of four large banks, including Credit Suisse.

While the individual drivers of each bank’s failure are seen to be idiosyncratic, the rapid speed and scale of a loss of trust in management (driving outflows) became a systemic issue requiring fast mitigation to prevent further contagion across the banking sector.

Framing the discussion, a 2023 BIS report outlined five themes that led to the market losing trust in Boards and Management:

  1. fundamental shortcomings in basic risk management of traditional banking risks (such as interest rate risk and liquidity risk; and various forms of concentration risk)
  2. a failure to appreciate how the build-up of various individual risks were interrelated and could compound one another
  3. inadequate and unsustainable business models, including an excessive focus on growth and short-term profitability (fuelled by remuneration policies), at the expense of appropriate risk management
  4. a poor risk culture, as well as ineffective senior management and board oversight
  5. a failure to adequately respond to supervisory feedback and recommendations

While ‘a poor risk culture’ is singled out, all five themes are a function of organisational culture. FINMA’s review of what it could have done differently in the case of Credit Suisse used the term ‘culture’ 28 times, interchanging it with ‘organisational culture’, ‘risk culture’, ‘management culture’, and ‘compliance culture’ – indicating a lack of clear definition and confusion on what regulators and organisations need to focus on when it comes to the influence of culture on organisational outcomes.

While several regulators continue to espouse the importance and supervision of risk culture (or the culture of risk management practices), it’s the broader organisational culture that requires greater attention in its role driving long-term value creation, viability, and market stability.