Misconduct and Risk Climate in Banking: Development of a Multidimensional Measurement Scale

Abstract

Misconduct and risk culture are two critical issues in bank supervision today. This paper reviews recent studies and regulatory documents on both topics to further our understanding of the dimensions that underlie these new, distinct risks to the global banking sector. Based on this review, a multidimensional measurement scale for misconduct and risk climate (M&R climate) is subsequently developed and validated. The scale obtained provides a tool in line with the leading guidelines and recommendations issued by international standard-setting bodies aimed at assessing M&R climate and monitoring the prevalence of misconduct and excessive risk-taking behaviours in banking.