ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Redistributing Regulatory Power

The Financial Sector Legislative Reforms Commission has exploited its ambiguous terms of reference to suggest a complete revamp of financial regulation. The recommendations, if accepted, would shift power from Parliament to "independent" bodies run by nominated experts and subject to scrutiny by a legal framework that might be capable of judging fairness of regulatory reach but not its appropriateness from the point of view of development. This is no legislative reforms commission but a commission that is serving as a vehicle to legalise a regulatory structure suited to a liberalised financial sector.

World Investment Outlook

Where to invest? Those with cash or charged with investing other peoples’ savings have had a serious headache over the past two years. The world is a deeply uncertain place right now. This normally indicates an attraction for bond markets – which in traditional versions offer a fixed interest rate...

Is the Global Financial System Safer

The financial crisis that erupted in 2007 and is still unfolding prompted a search for reforms that would make the global financial system safer. Several initiatives have emerged. They represent an attempt at addressing flaws in the system that rendered it vulnerable to a crisis on the scale we...

The Quiet Power of the Ratings System

Over the years, the ratings system and, therefore, the ratings fi rms have become a part of the regulatory framework in many countries which has given them enormous infl uence in the fi nancial system. But there is a basic confl ict of interest when a ratings fi rm is paid by an issuer to rate its offering. With an Australian court delivering a landmark judgment ruling that a ratings fi rm was guilty of "negligent representations", the stage is set for a number of court processes that will investigate the working of these powerful agencies.

How Do We Resolve the Too-Big-to-Fail Problem?

The Vickers Commission in the United Kingdom has advocated ring-fencing of core banking activities; the Volcker Rule in the United States prohibits banks from engaging in certain kinds of investment activities. Neither will be easy to implement and neither is likely to be very effective. To deal with the risks posed by systemically important financial institutions what is needed is a multi-pronged approach that addresses size, concentration and ownership structure and far more intrusive regulation than we have seen in the recent past. An important element in this approach must be the presence of a few large banks in the public sector.

Wages of Capital Account Liberalisation

The government and the Reserve Bank of India have taken a series of measures in recent weeks to attract a larger volume of foreign debt capital. These measures only increase the economy's dependence on capital infl ows and make it vulnerable to outfl ows, even as they do little to deal with the basic problems underlying the fall of the rupee.

India Dimmed

agree to a fiscal pact in December 2011 India Dimmed and to support a Greek restructuring plan gave the European Central Bank (ECB) cover to ignore the intentions of its Avinash Persaud founding fathers and act as a lender of When you are in a country suffering a decline of confi dence, a drying up of international capital flows and a weakening currency, its citizens tend to place all blame on the government. This is not entirely unfair. Even if the government is not directly to blame and even though confidence is a fickle thing, who else should take responsibility? The reality, though, is that external factors often play a role too and a change in the flows could also trigger a change in domestic confi dence. Few commentators like to dwell on that. They far prefer the delicious exercise of pointing fingers at local politicians and gossiping about the fate of Rahul and Priyanka Gandhi.

Anatomy of a Bank Failure

The public report of the investigation by the United Kingdom's Financial Services Authority into the failure and subsequent bailout of the Royal Bank of Scotland in 2008 highlights deficiencies in regulation and supervision as also failures in bank governance. The fsa report is essential reading for regulators as well as those at the helm of banking.

Thirst for Foreign Capital

The decision to allow qualified foreign investors to invest in India's equity markets is a source of concern both for the kind of funds that will be attracted and what this says about the government's own state of mind. Unless there is some urgency about seeking out additional sources of capital inflow, it is difficult to explain why the government must open the doors to a source that is unlikely to deliver much foreign capital and would, if it does, increase rather than decrease speculation and volatility.

Could It Happen Here? On Sovereign Debt and Bank Capital

India does not suffer the euro-zone problem of a federal central bank with a restricted mandate. What India does have in common with Europe is capital-constrained banks stuffed full of government debt issued by a fiscally over-extended sovereign, in a slowing economy.

Taxing the Financial Sector

 Taxing the Financial Sector Avinash Persaud On Wednesday, 28 September, the European Commission (EC) proposed a European Union (EU)-wide 0.1% tax on bond and equity transactions and 0.01% on derivative transactions between financial firms to support European countries in crisis. This is not very dissimilar to the taxation in India on share transactions, but Cassandras in Europe and elsewhere will shout that it is another crazy idea from European leaders that will presage financial Armageddon, or at the very least, destroy liquidity, tax consumers not bankers and hinder the extension of finance to the poor and needy. In truth, this tax is more feasible than many would have us think, and like all taxes can be set well or badly and if set well, could bring several benefits. India too should widen its financial transactions tax (FTT) to include fixed-income and derivative instruments. Bankers would like us to think that you have to be a little crazy to support financial transactions taxes yet it is an idea with excellent pedigree. John Maynard Keynes proposed it in General Theory no less. Nobel laureate James Tobin followed suit in 1971 amid the wreckage of the Bretton Woods system of pegged but adjustable exchange rates. In 2009, the chairman of the United Kingdom

New Banks: Don't Say 'Yes' If You Want to Say 'No'

The Reserve Bank of India has published its draft guidelines for new entrants to the banking sector. It would have been advisable for the RBI to spell out the principal objective in licensing new banks. Is the principal objective greater competition or is it financial inclusion? If it is competition, then it would be alright to subject the new banks to the same branch licensing norms as the existing ones; if it is inclusion then they must be told to focus to a greater extent on unbanked centres. Unfortunately, the RBI has not thought it necessary to make the case for new entrants.

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