Coordination & cooperation in financial regulation: Do regulators comply with banking culture?

Financial regulation is moreover based on self-regulation and coordination of external and internal supervision. This new supervisory arrangement requires that compliance with the criterion of sound and prudent management must become a rule of conduct for intermediaries. This produces an evolution in the role played by the supervisory authorities, and in the way they interact with the governance bodies of the banks. Capacity to adequately perform advisory functions entails the existence of: consistent objectives by both the supervisory authorities and the supervised entities, which is one of the basic principles of the consensual regulatory approach; consistent knowledge and cultural models. In the attempt to measure the current level of consistency of knowledge and culture between supervisors and banks, this paper identifies organizational mechanisms to be employed for communicating and focuses on the cultural gap as a possible stumbling block in the efficient exchange of information among regulators and the industry. The cultural gap is investigated by means of a text-analysis approach. The methodological assumption is that the analysis of culture is closely connected to the analysis of the type of language used by the members of an organization. We develop a cultural survey based on the application of a text-analysis model to a corpus of reference texts produced by three samples, drawn from the national regulators, the banks and the Basel Committee. Compared to previous studies, this paper focuses on an evolutionary aspect of text analysis, concerning standardization in the treatment of data, combined with the use of standard vocabularies. This allows a greater comparability of the output of the various approaches, enabling us to further refine the methodology. The analysis model includes the definition of several concepts - such as “risk” and “disclosure” -, at the base of the development of banking culture, that represent basic goals of the prudential regulation. The model also makes reference to certain text analysis categories drawn from the Harvard IV Psychosocial Dictionary (Zuell et al. 1989) and the Lasswell Value Dictionary (Lasswell and Namenwirth 1969), used as a gauge for the abovementioned key concepts. Keywords: Financial Regulation, Banking Culture, Cultural Compliance, Text Analysis. JEL Classification: M14, N20