Wednesday, February 05, 2014

The strategy for systemic risk regulation in India

In recent years, there has been a debate about systemic risk regulation in India. One point of view on this subject was that of Dr. Subbarao, the previous governor of the RBI.

As responses to this, see: a point-wise response by Sowmya Rao and a newspaper column by K. P. Krishnan.

A fully articulated strategy on systemic risk is embedded in the draft Indian Financial Code, which was done by the Financial Sector Legislative Reforms Commission. I have written a guide to the elements of this law. It is also useful to look at Chapter 9 of volume 1 of the report.

We now have two developments on these questions:

  1. The objective of RBI is gradually getting clarified in favour of price stability. This reduces the fog that surrounded RBI. RBI's hope of pursuing financial stability as an objective was partly about avoiding accountability; when you have many objectives, you're accountable for none. Clarity of objectives will improve clarity of thought.
  2. The strategy for systemic risk regulation is articulated nicely in a recent speech by P. Chidambaram at a conference in Delhi organised by CAFRAL, the new think tank setup by RBI.

This blog post, then, adds up to everything you might want to read on the subject of policy analysis of systemic risk regulation in India, as of date.


  1. I think you missed out a link to the paper that talks about measuring systematically important firms in India. While the paper does not directly discuss regulation, measurement is extremely important to good regulation. The paper is here:

    1. Agree. My "everything you might want to read" was about policy work.


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