Curry Sets Sights on Bank 'Culture'

WASHINGTON — Culture at banks and the "tone" set by senior executives has a bigger role in spurring problems at banks than individual bad decisions, Comptroller of the Currency Thomas Curry said Wednesday.

In an op-ed posted as part of The Clearing House's quarterly journal , Curry revisited a theme increasingly on the radar of regulators: the culture within banks. He said recent problems, such as the "robo-signing" scandal, "may not have been the result of conscious decisions on the part of senior management."

"What troubles me is not that some individuals made bad decisions, but that the business practices that have caused problems were made possible by weaknesses in the organization's risk management and risk culture," Curry wrote in the article published in the trade group's "Banking Perspective." 

"Rather, management's responsibility lies in its failure to set an appropriate tone at the top and to build a strong organizational culture that promotes responsible business practices and guards against excessive or improper risk-taking.

The OCC recently finalized formal guidelines establishing "heightened standards" for large banks' risk management, which partly addresses the culture within institutions. But Curry said more needs to be done. He highlighted a pending interagency rule, which was first proposed in 2011, that would seek to ensure incentive-based compensation pacts do not lead to excessive risk.

"The rule would prohibit arrangements that either provide excessive compensation or that could expose an institution to inappropriate risks that could lead to material financial loss," Curry wrote.

It was not the first time Curry raised the issue of culture, and he is not the only regulator focused on it. The Federal Reserve Bank of New York is hosting a conference Oct. 20 on bank culture, and among the speakers is Federal Reserve Board Gov. Daniel Tarullo.

Curry acknowledged that measuring a bank's risk culture "is not easy for regulators."

"It's not like credit quality or earnings strength. But it's important because it has an incredibly powerful influence on the risk decisions and behaviors at all levels of an organization," he wrote.

He had earlier brought up concerns about bank culture during remarks last month at American Banker's regulatory symposium.

"When I use the word 'culture' it's really the establishment of standards and the enforcement of those standards," he said at the Sept. 22 event. "When we see issues today about the operations and operational risk, those really are the result of people not being clear what the standards of conduct are, what the ultimate goal is."

The regulator said in the op-ed Wednesday that he views a bank's values and the level of trust it has gained as equal in importance to sound capital levels.

"The banking system runs on confidence, but the trust an organization spends a generation building can evaporate almost overnight when it loses sight of the values on which its business was built," Curry wrote. "As a regulator, I worry as much about the loss of trust and confidence in the system as I do about liquidity, capital, and underwriting practices."

He said concerns about culture are "by no means limited to large" banks regulated by the Office of the Comptroller of the Currency.

"Indeed, we have seen improper business practices and deficient risk management systems at community banks," he wrote. "But those smaller institutions don't get the kind of public attention that hurts the industry's reputation, nor do they have the same kind of outsized impact upon the economy as large banks."