The Federal Reserve Bank of New York [1] has released a report that includes nine research papers aimed at identifying and understanding key factors affecting governance and culture in the banking industry, according to an announcement from the New York Fed.
The report, released as a special issue of the New York Fed’s Economic Policy Review [2], was four years in the making, the New York Fed said.
“Corporate culture and governance have been central to every crisis involving U.S. business practices over the past century,” said Hamid Mehran, assistant vice president in the New York Fed’s Research and Statistics Group. “Today’s volume identifies and assesses key issues in banking culture and governance. By fostering a better understanding of the factors that drive financial stability, these insights can assist researchers and practitioners as they work to establish a stronger, healthier U.S. and international financial system.”
The report is comprised of two complementary parts, according to the New York Fed. Part 1 contains five white papers and explains the concept of culture and its importance to risk management and financial stability, which includes a framework for diagnosing and changing culture, a description of how corporate culture is shaped, an exploration of the importance of effective risk management, and the roles that deferred cash compensation and bank cash holdings play in promoting financial stability.
Part 2 of the volume contains four papers and assesses the critical areas of corporate governance, which include the role of the board of directors, the monitoring function of large outside shareholders, the importance of financial disclosure and transparency, and how banks’ disclosure practices and performance are related.
The nine papers included in the volume are:
Part I: Culture and Risk Management
- “Corporate Culture in Banking” by Anjan Thakor
- “The Gordon Gekko Effect: The Role of Culture in the Financial Industry” by Andrew W. Lo
- “Risk Management, Governance, Culture, and Risk Taking in Banks” by René M. Stulz
- “Deferred Cash Compensation: Enhancing Stability in the Financial Services Industry” by Hamid Mehran and Joseph Tracy
- “Cash Holdings and Bank Compensation” by Viral Acharya, Hamid Mehran, and Rangarajan K. Sundaram
Part II: Governance and Financial Reporting
- “Bank Corporate Governance: A Proposal for the Post-Crisis World” by Jonathan Macey and Maureen O’Hara
- “The Role of Financial Reporting and Transparency in Corporate Governance” by Christopher S. Armstrong, Wayne R. Guay, Hamid Mehran, and Joseph P. Weber
- “Transparency, Accounting Discretion, and Bank Stability” by Robert M. Bushman
- “Public Disclosure and Risk-Adjusted Performance at Bank Holding Companies” by Beverly Hirtle
The topics discussed in the white papers include identifying good and bad risks and eliminating the bad risks, and making sure a bank’s risk appetite and risk level are consistent with each other; and diagnosing and changing a corporate culture to one that support’s a bank’s growth strategy and promotes financial stability.