Events in 2008 to 2010 have shown the worst excesses of Corporate greed and the ‘Chickens coming home to roost’ scenario which many  observers  have been forecasting for some time.

In some respects the current banking environment can be traced back many years, starting from the very reason why banks exist in the first place, - to provide liquidity , yet they can only do this through the means of exchange being money, effectively on trust.

The core principle of  money  is therefore based on Trust, .i.e the ability to repay , and the  use of money as a medium of exchange is based on this core belief.

When Behavior gets in the way of  a Trusting relationship  e.g. inappropriate lending, Risk ignorance, corporate greed, obscene  bonuses, then rules have been put in place to curb the  worst excesses of this behavior and  we then come into the thorny problem of regulation. Or do we?

Some would argue that the current crop of Banking disasters was a symptom of de regulation in the latter part of the 20th century, and indeed chasing customers, encouraging borrowing and inflating asset values have all promoted inappropriate behaviours as we have been in pursuit of growth.

The point here is that regulation  or de regulation  per se is not a bad thing provided it is structured in a way that promotes ‘good’ behavior and is founded on deep rooted  principles

If we take an analogy from nature, then regulation needs to include a natural set of checks and balances and lays down parameters, not necessarily strict rules, so the concept of ‘Intelligent design’ needs to be put in place.

Rather than have a strict set of rules about disclosure, or market performance or shareholder value creation, a conceptual framework of behavior which includes morals and business ethics needs to be formulated which should automatically encourage trust, care and respect for others, all values that mean we can all get along a bit better and create trust.

This behavior should be on the demand and supply side of the equation, i.e individuals, or consumers, should themselves behave in such a way that they become responsible to themselves and  others

The inhabitants of Easter Island will have understood this, when it became legitimate to chop a tree down, how did they feel when the last tree was chopped?

Having developed the small agrarian economy  based on ceremony and mutuality , their downward spiral into greed and self interest is an object lesson to us all.

So it is with regulation, for good regulation to have an effect it should seek not just to influence behavior, but strike at the heart of the ethics, morals and values , indeed the very  trusting soul  of  mankind.

Certainly when we get this deep we talk about spirituality in it’s broadest sense  and the worlds religious belief all strike at the heart of what is being said here, in the end they come down to a very  simple set of rules or indeed the Golden Rule.

This is a rule not  just for the giver, but the receiver as well . the trouble with regulation is what the economists would call Agency Theory, that is no matter how strict you draw up a set of rules, there will always be a way round them, if you want to find them, that is why behavior should be about upholding the spirit  of the rules, rather than each individual clause , so here we are again, going back to spirituality and care for each other. (not to mention MPs expenses)

The sooner we realize this the better, regulation has a limited role to play, John Donne had it right

Human beings do not thrive when isolated from others. Donne was a Christian but this concept is shared by  many other religions

I don’t think there is a better summary of these thoughts than the quote from Donne himself, set out below.

‘No man is an island, entire of itself...any man's death diminishes me, because I am involved in mankind; and therefore never send to know for whom the bell tolls; it tolls for thee."

Put these thoughts into the current Economic malaise and you will see why behavior and dare I say it, Spirituality is more important than ever. Updating Donne into the latest management speak, behavior is a zero sum game, any bad behavior will harm both the receiver and ultimately the giver as we live in a closed society and on a planet with finite resources

We may not all need regulation per se , but we do need to be reminded of some basic principles of why we are here in the first place.

Good Governance starts and end with behavior based on trust, such trust should be principles based and not rules based..