The Terroir of Regulation

© David Coleman | Dreamstime Stock Photos

© David Coleman | Dreamstime Stock Photos

Frank Keating, President/CEO of the American Bankers Association, reminded us a few days ago that there is too much regulation of the banking industry. You can find a quick blurb from Bloomberg News here. I echo Mr. Keating’s sentiment, but I believe there is another level of deliberation and, indeed, introspection that we need to ascend. Let’s talk wines, and more, for a moment.

Terroir. In my research on this French term, I find many definitions and descriptions, from references to winemaking, which seem to reign superior, to a broader description in Wikipedia - ”‘a sense of place….which is embodied in certain characteristic qualities, the sum of the effects that the local environment has had on the production of the product.” This earthy flavor that some find fancy and provocative while at the same time very comforting, is, I believe, largely missing from the ways in which we conduct business today. We have lost our sense of place, of relationship, and of morality and ethics.  Because of this lack of terroir, we find our industries burdened with more and more regulation. Much like dogs that chase their tails, we chase after riskier types of assets to overcome the fiscal and organizational obstacles raised by regulation. How do we overcome this Groundhog-Day-esque existence?

The ascension out of this regulation is to move forward to an environment where we regulate ourselves and do so without a great deal of outside intervention. Now, many will say that we have done this. It’s not possible, they’ll exclaim. We have tried to police ourselves and it just doesn’t work. It’s under control, they’ll say. Wink, wink, nudge, nudge. I think the debacle of 2008 and 2009 proves otherwise and leaves many wondering when, not if, a similar upheaval will occur again. If we go on believing that any extreme – hyper-regulation to absolute laissez-faire behavior – is the answer, then we all lose. I posit the following for us to consider:

  1. Competition, but not decimation, is healthy.
    • It’s important to have healthy competition, but it is not particularly important to decimate other parties.
    • If we focus on our work, others will fade or be folded into our culture and systems. Our greatest enemy is often our own people, process, and performance.
    • This sense of decimation makes regulators look again and again at how we conduct business.
  2. Commoditization is fallow ground.
    • I’ve often written about how commoditization will lead to consolidation. I still believe that.
    • Commoditization, and to some degree, homogenization, makes it easy to self-regulate. Our similarities in this arena are ripe for picking, cultivating.
  3. Rules, mutually agreed upon, lock out unwanted pests and unneeded temptations.
    • Along with overregulation comes useless lobbying. Self-regulation will eject these unneeded temptations from the battlefield, allowing greater focus on the battle.
    • With sound rules that we created, the pests, ahem, regulators, will just not be needed. I know that is a naive statement, but a guy can dream, right?
  4. Collaboration brings freedom of the land.
    • Working together, as traditional farmers have done for generations, means a more fertile landscape for all.
    • If we set out every morning to shrug our shoulders and cross our arms in the hopes that we’ll win, my guess is that will lead to bigger losses for all. We have regulators because some, both suppliers and consumers, choose to game the system. It’s not about the principle of this party or that party, this political philosophy or that one. It’s about what can I get before you get it. In the infamous words of Danny Devito, playing the role of Larry the Liquidator in Other People’s Money, “whoever has the most when he dies, wins.” I think we are better than that.

So, I did say this was about the terroir of regulation and not the terror of regulation. I don’t think it has to be a terror. I do believe it will take a great deal of time, energy, and humility to find this new place. So, grab a shovel. Let’s get to digging.

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