The financial crisis of 2008 hit banks in Iceland and Denmark with different intensity. There was a difference in how management controls changed in response to the crisis. Icelandic banks redefined cultural controls, introducing new values as a “clean break” with the banks’ pre-2008 practices. They formalised their risk management, compliance and internal auditing practices, and hired more employees to perform these functions. Further, they strengthened and formalised their policies and procedures to ensure consistent practices. The Danish banks adapted their administrative controls to new regulatory requirements. Risk management, compliance and internal auditing were relatively mature processes in the Danish banks before the crisis, and the adjustments required to adapt to changed compliance requirements were less extensive. Management controls in general seem to play a critical role in responding to and moving forward after a crisis. The top management tier – especially the Chief Executive Officer (CEO) – is critical in managing change and defining the path forward. The managers and employees involved in designing and operating management controls are critical in translating and enacting the necessary changes.
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