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

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Regulators: Captivated by the Market

The present global credit crisis has again shown that the supervisory and regulatory structure is out of alignment with the dynamics of the global financial market. When risks are being distributed among different financial institutions, can we live with split regulation? Will regulators continue to have no say in the regulation of rating agencies? It is time that central bankers devise a regulatory structure appropriate for the changed context; one that does not shy away from interventionist regulation.

Nuclear Debate, National Interest and Political Drama

The tone of the political debate on the Indo-US nuclear deal has been bewildering. What is worrying, as illustrated by this exchange, is that political parties are undermining the culture of dialogue and deliberation that lies at the heart of our democratic polity. Rival speakers have to listen to one another and be prepared to modify their respective positions. It is only through such dialogue and deliberation that political establishments can prove that they are capable of democratically responsible behaviour.

Aggressive Banking and Passive Regulation

Securitisation of loans has emerged as the driving force in financial markets, transforming radically the way assets in different sectors of the economy are being created and marketed, but this carries the seeds of a crisis which is what has erupted in global markets. It is time we realise that standard conservative banking principles should not be given the go-by in the name of the new fangled, exotic kind of banking. But will this ever happen?

Genesis of High Finance

The story of the Medici Bank of 14th and 15th century Florence is the story of how one family used finance to control a government. In the priority that the Medicis gave to financial deals can be found the seeds of the forces of global finance that today wield so much influence on the politics and economics of nation states.

Danger of Hedge Funds: FII Inflows and Regulatory Helplessness

Our political establishment is taking grave risks in allowing unrestricted FII inflows without appropriate disclosure and scrutiny. We cannot afford the luxury of waiting indefinitely till good sense dawns on the US regulatory and political establishments. We should therefore take the lead for concerted action by the developing countries, for in the coming months it is the currencies of these countries and some of their major corporate players that could be the obvious targets of hedge funds. The barbarians have crossed the gate and are inside our arena. Where is our strategy to discipline them?

Machiavellian Virtue and Economic Globalism

China National Offshore Corporation?s bid for the US multinational oil company Unocal has resulted in a drama of realpolitik in economic globalism. What is, however, of interest is that China has determinedly followed a policy to take on the MNCs and global power on its own terms.

A Policy Approach for Agricultural Lending

It is unrealistic to think that the public sector banks can revitalise agricultural credit delivery without a completely revamped extension services system. It is also time to consider supporting microfinance organisations to take on a larger responsibility in livelihood development. The banks cannot, on their own, carry out the full range of rural credit lending services.

'Fit and Proper' Banks

In the current supervisory regime of banking regulation, governance concerns take a lower priority than asset-liability and capital-adequacy issues. The RBI's proposed stipulations on ownership regulation will have credibility only if the central bank adds another dimension to its supervisory range. It must accept that keeping a watch over the practices and processes of commercial banks is as much a critical component of its supervisory responsibility, as scrutinising the commercial bank's handling of its asset and liability portfolio. The RBI should consider having a separate instrument, a kind of management audit and inspection, as an essential component of its overall inspection. This will add teeth to its surveillance responsibility and keep the RBI abreast of what is happening on the governance front in every commercial bank.

Disciplining RNBCs

For the few large companies that dominate this sector, the seal of regulatory approval by RBI is their most invaluable asset generating trust among their prospective depositor, mostly in rural and semi-urban communities and ensuring that deposits raised are in accordance with the terms and conditions approved by the RBI and that reasonable safeguards have been installed against default and misuse of funds. But the smart among them manage carefully to stray away carefully from the regulator's watchful eye. Some of the activities they engage in are arguably in the disputed border zone and some safely sheltered in no man's land.

Quirks of the Market Regulator

With the laudable objective of disciplining market participants, the Securities and Exchange Board of India (SEBI) has embarked on a massive operation of building up a comprehensive unique identification scheme. But how will biometric information, to be collected on such a massive scale, add teeth to SEBI's surveillance exercise? And how well is it equipped to isolate those that pose a threat to the integrity of market process? Regulators have to be certainly effective, but they have to be understanding and imaginative as well.

Behind the Celebrity Mask

Behind the Celebrity Mask The Parmalat affair has thrown up the need to change the existing market intelligence system. Not only has it to be extensive, more importantly, it has to be unorthodox, listening to the whisperings in the marketplace, tuning in to the signals being emitted and having the courage to ask uncomfortable questions of financial celebrities.

The Dance of Politics

For years political parties have failed to take note of the growing intensity of feeling against disruption of civic life. Often the disruptions are massive and the agencies of governance choose to look the other way. The circumstances in which a judge of the Calcutta High Court recently felt compelled to attempt to regulate disruptive public protests in the interest of citizens' right to go about their lives are by now well known. If political parties had been behaving responsibly the confrontational ambience would never have arisen. It is the behaviour of political parties and the failure of deliberative politics that have opened the floodgates of judicial intervention.

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