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| RBI ideally placed to address financial stability issues |
| BS Reporter / Mumbai Mar 26, 2010, 00:25 IST |
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The Reserve Bank of India (RBI) today said it was ideally placed to address financial stability issues on account of the multiple roles performed by it.
“Natural synergies between the roles of the Reserve Bank as a monetary policy authority, a regulator and supervisor of institutions and markets and a lender of last resort provide it the requisite means and competence to play an integral role in addressing the objectives of financial stability,” RBI said in the Financial Stability Report.
The 110-page document produced by the Financial Stability Unit said the issue of relationship between the High Level Coordination Committee on Financial Markets (HLCC) and the proposed Financial Stability and Development Council (FSDC) needed to be addressed.
“Although the precise composition and mandate of the FSDC are yet to take shape, the proposed body answers a felt need for an institutional mechanism in the post-crisis scenario to pre-empt build-up of systemic risks with potentially huge costs for the fiscal balance sheet. The Reserve Bank is committed to working closely with the government and other regulators to set up an agreed protocol delineating the specific roles and functions of the FSDC vis-à-vis the existing framework,” RBI Governor D Subbarao said in the report.
The report comes a day before the HLCC, comprising financial sector regulators and finance ministry officials, meets in Mumbai.
This is the first meeting of the HLCC, headed by the RBI governor, since the plan to set up the FSDC was announced in the Budget.
In the past, RBI has opposed the idea of providing an institutional framework to the HLCC on grounds that an informal structure leads to free speech. Besides, at the last HLCC meeting, when the government reopened the case for a framework, the cetnral bank pointed out that at the height of the global financial crisis, decisions were taken over the phone.
This is said to have prompted the finance ministry to look at having an FSDC.
In the Budget speech, Finance Minister Pranab Mukherjee had said that the FSDC would monitor macro prudential supervision of the economy, including functioning of large financial conglomerates, and address inter-regulatory coordination issues. It will also focus on financial literacy and financial inclusion.
In the report, RBI said the HLCC, which had been in place since 1992, worked on ensuring a co-ordinated approach to the supervision of the financial system and was aided by sub-committees. It pointed out that a sub-committee was specifically mandated to undertake the monitoring of financial conglomerates that had floated banks, insurance companies, asset management companies, pension funds and other financial services firms.
Earlier this month, Finance Secretary Ashok Chawla had told Business Standard in an interview that the FSDC would not impinge on the mandate given to the regulators but instead deal with issues that covered the whole financial and economic system.
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