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Report on trend and progress of banking in India 2009-10

By: Reserve Bank of India.
Material type: materialTypeLabelBookPublisher: Mumbai Reserve Bank of India 2010Subject(s): Banks and banking - India | Researve Bank of IndiaDDC classification: D001878 Summary: The global economy is recovering from the worst financial crisis since the great depression. The recovery, however, has been fragile and uneven. The financial crisis has brought a number of lessons to the fore. First, financial regulation needs to stay ahead of the curve to avoid falling behind financial innovations and emerging new business models. This requires continuous sharpening of regulatory and supervisory skills and instruments. Second, there is need for interagency coordination which calls for understanding the respective roles of central banks, regulators, supervisors, and fiscal authorities with regard to financial stability. The agencies need to share information/data and sit together to resolve the overlapping issues devolving on more than one regulator. The third lesson points to the need to study the implications of large scale bail-out packages for the regulatory architecture of the financial system and for the fiscal health of countries. The rescue packages of one country may have worldwide repercussions through financial channels, adding costs to macroeconomic management even when countries in question are far removed from the epicentre of the crisis. To mitigate the effects of contagion and its impact on the domestic financial system, relevant issues regarding the methods and scope of deposit insurance and the feasibility of extending guarantees to financial institutions may need to be explored. The fourth lesson calls for better understanding of the weaknesses of structured products and derivatives in the credit markets which have implications for financial stability. In this respect, the relative superiority of different modes of trading and settlement practices need thorough examination to address the shortcomings inherent in the Doriginate-todistributeDmodels.Finally,regulatorsshouldremainvigilantwhilestrikingtherightbalancebetweenmoderatingrisk-takingandeconomicgrowthsincemarketsandinstitutionshavethetendencytosuccumboccasionally.
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The global economy is recovering from the worst financial crisis since the great depression. The recovery, however, has been fragile and uneven. The financial crisis has brought a number of lessons to the fore. First, financial regulation needs to stay ahead of the curve to avoid falling behind financial innovations and emerging new business models. This requires continuous sharpening of regulatory and supervisory skills and instruments. Second, there is need for interagency coordination which calls for understanding the respective roles of central banks, regulators, supervisors, and fiscal authorities with regard to financial stability. The agencies need to share information/data and sit together to resolve the overlapping issues devolving on more than one regulator. The third lesson points to the need to study the implications of large scale bail-out packages for the regulatory architecture of the financial system and for the fiscal health of countries. The rescue packages of one country may have worldwide repercussions through financial channels, adding costs to macroeconomic management even when countries in question are far removed from the epicentre of the crisis. To mitigate the effects of contagion and its impact on the domestic financial system, relevant issues regarding the methods and scope of deposit insurance and the feasibility of extending guarantees to financial institutions may need to be explored. The fourth lesson calls for better understanding of the weaknesses of structured products and derivatives in the credit markets which have implications for financial stability. In this respect, the relative superiority of different modes of trading and settlement practices need thorough examination to address the shortcomings inherent in the Doriginate-todistributeDmodels.Finally,regulatorsshouldremainvigilantwhilestrikingtherightbalancebetweenmoderatingrisk-takingandeconomicgrowthsincemarketsandinstitutionshavethetendencytosuccumboccasionally.

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