The impact of risk culture on bank reputation

Could risk culture affect financial institutions’ reputation? The chapter aims to answer this question by applying an event study approach to a couple of Italian banks sanctioned for their distorted behaviour. We used these sanctions as a proxy of a poor risk culture within the organization and the decision making process. Abnormal returns we observe in two different time intervals exceed the value of the supervisory sanctions. The exceeding capitalization loss can be considered as a proxy of reputational loss due to lack of risk culture. Our evidence suggests that behaviour could have been better controlled and re-addressed within an environment characterized by a higher risk culture intensity.