Reputational risk in banking and finance: An issue of individual responsibility?

Abstract

This paper considers the changing impact of reputational risk in financial services, notably since and during the financial crisis of 2007–2009. It begins by identifying the reputational risks that firms in the industry encounter, defining what constitutes that risk and the variety of losses and business damage that are wrought by reputationally harmful incidents. It goes on to examine the ‘special’ nature of financial services and why the reputation of financial institutions is particularly important. The paper then considers the role of personal responsibility and cultural factors in the creation of robust corporate governance. It examines the changing methods by which regulators and the industry itself are now looking to address these cultural issues to create a framework that is more resilient to reputational risk and conducive to personal liability for breaching regulations. It concludes by discussing the role of managerial leadership in achieving sound corporate governance.