Can Rules Build Confidence?

Last week, the financial world was rocked when news broke of the failure of two banks. One of them is the Silicon Valley Bank (SVB), the tech lender worth about US$17 billion with almost US$200 billion in customer deposits.

How does a mid-sized bank with deposits from some of the world’s biggest venture capitalists suddenly collapse?

People who know a lot more than me about the financial sector are speculating about the combination of factors that could have been responsible - from the bank’s management to inflation, and the rollback of credit requirement regulations. So, I’m not qualified to even presume I have a clue about what led to the collapse.

I do want to share my thoughts about whether or not better regulations can help in forestalling similar occurrences in the future. This was the question one of my mentors posed to me about the situation. Do we need more rules and regulations in the financial sector?

Maybe. Or maybe not. “Definitely not” is a third option.

I say maybe because we’re speaking of banks and the financial sector. With tighter regulations, the confidence level of investors could be restored. In addition, it will most likely calm the volatility that this is currently causing within the stock markets. These situations will most likely apply to those who follow what’s going on closely and to people who tend to be astute with financial matters.

In my mind, it's also a “maybe not” because not everyone will be attuned to what new regulations are being passed. Some who have heard of the collapse of these banks could continue to panic and make the decision to pull out their investments irrespective of what regulators do.

Also, I believe ethics play a strong role here. There were rumors that some of the executives of SVB sold off most of their stocks just before the collapse. So, they knew what was coming and decided to save themselves.

I don’t think stronger regulations will stop people who want to cheat the system. Cheaters would always find ways to cheat. Plug some loopholes with new rules, and they will find new and better ways to locate other loopholes.

Finally, if we extend this to organizations in general, I would go with a “definitely not.” Here's why: I don't think more rules build the type of confidence that motivates people in general. Rules don’t build trust. The behaviors of those who lead do.

And I believe people will follow leaders they trust. Such trust will translate to how employees treat one another and their customers.

I believe this is truly a game-changer for any organization.

Please leave a comment about your thoughts on this. I’d love to know what you think.