At a time when the financial sector is being blamed for much of the global economic crisis, former RBI Governor Y V Reddy has said that some financial conglomerates are more powerful than even the central banks.
At the same time, Reddy has also flagged the issue of leading rating agencies and accounting firms enjoying an oligopolistic power over the markets, and said that some large international banks enjoy significant influence over political economy in several countries.
"They (international banks) have often been found to deal in financial flows of suspect legality in one country, though not always in both countries involved.
"International banks have the opportunity and incentive to conduct operations involving tax avoidance. Because of these operations, international banks enjoy significant influence over the political economy in several countries," Reddy said, while delivering the Per Jacobsson Foundation Lecture 2012 yesterday in Basel, Switzerland.
"In the prevailing environment of global financial markets, some large global financial conglomerates are larger and, perhaps, more powerful than some of the central banks," said the former chief of the Reserve Bank.
On policy front, Reddy said that "available evidence shows that financial contributions to political activity from the financial sector in many affected countries (from economic crisis) increased significantly in recent years.
"Moreover, large global financial conglomerates seem to be in a position to influence not only political governance but also corporate governance, to suit their own interests."
While Reddy did not name any country in his speech, his remarks mostly appear to be targetted at Western countries. However, the role of rating agencies and accounting firms have been criticised on various platforms in India as well.
Speaking on the issue of 'society, economic policies and the financial sector', Reddy said that the "concentration of global financial power in a few entities with close mutual connections has considerable potential to undermine competitive forces."
Without naming any entities, Reddy said: "The leading rating agencies and accounting firms, along with few leading business news agencies, have continuous dealings with each other, which tends to reinforce the exercise of their oligopolistic power over markets.
"Further, operations of international banks/conglomerates specialising in cross-border flows, combining traditional banking and risky investment banking operations, have close business and operational links with rating agencies, accounting firms, etc," he noted.
