Assessing risk culture so banks stay strong
A/Professor Elizabeth Sheedy,
research project lead
Preliminary findings on this project are expected in February 2014.
Banks are being sought to take part in an important research project investigating corporate risk culture.
A multi-disciplinary team, led by Associate Professor Elizabeth Sheedy from Macquarie University's Applied Finance Centre, who is also a member of the Centre for Financial Risk, is investigating the role of risk culture in the stability – and performance - of financial institutions.
Since the GFC, the risk culture within an organisation has been recognised as a crucial element - in tandem with the regulatory framework and good governance practices - in the capacity of the institution to perform reliably. For this reason, research to define and quantify the role of risk culture is now underway.
"Banking culture in Australia seems to be more conservative than in other parts of the world. The effective oligopoly of the big four banks means each one is quite profitable. So there is not the same pressure to take big risks that we saw in other countries during the GFC, Dr Sheedy said.
The research project Elements of Risk Governance and Culture, is being conducted over three years. Institutions taking part will receive free, detailed reports based on the confidential and anonymous survey responses of their staff to a secure email survey. The project aims to produce an objective, statistically validated methodology for assessing risk culture. Participation will allow banks to make valid comparisons with other organisations, to identify parts of the organisation where culture might be inconsistent and to assess how their own culture changes over time.
Risk culture will be assessed by surveying employees, directors and senior executives across more than 20 local and international firms. Banks taking part in the survey will not be identifiable in the published findings.
Dr Sheedy said it was hoped a representative sample of staff across the organisation, including some in risk management, would take part in the risk culture assessment.
"All staff can be invited to participate, or alternatively staff in a target group of teams and business units can be invited to participate. We work with organisations with regard to this selection process. HR departments will email employees a link to the secure on-line questionnaire," she said.
An example of a survey question is: "The behaviour of those who breach risk policy is typically excused if they generate sufficient revenue." Respondents will be asked to rate how strongly they agree or disagree with statements.
Additionally, the participation of all directors and senior executives is sought because of their crucial role in defining the overall culture of an organisation, and involves a shorter survey targeted to assess how risk is governed and valued at the most senior levels of the organisation.
Dr Sheedy said risk culture can be defined as the degree to which risk management is valued throughout an organisation, and related to the norms of behaviour within an organisation that determine the collective ability to understand, openly discuss, and act on current and future risk.
"Not to be confused with risk appetite, risk culture refers to the shared values and beliefs that enable people to work within an organisation's boundaries of acceptable risk taking," she said.
The research project is being funded by Macquarie University, the Centre for International Financial Regulation (CIFR), and has been developed in conjunction with The Australian Prudential Regulatory Authority (APRA).
CFR members Associate Professor Sue Wright and Dr Shane Magee, along with Associate Professor Barbara Griffin, an organisational psychologist from Macquarie University's Faculty of Human Science, comprise the research team.
For more information or to become involved in the research project, please contact Associate Professor Elizabeth Sheedy