RBI says Common cross border resolution mechanism not feasible

Mumbai, Nov 4 : The Reserve Bank of India (RBI) has termed as not feasible suggestions in the global financial forum to have a common cross border resolution mechanism or global fiscal burden sharing.

The most practical approach would be to incentivise organisation of a group as a 'constellation of separately subsidiarised national banks’ in the case of systemic entities rather than as a globally integrated bank, RBI Deputy Governor Shyamala Gopinath said while addressing the FSA Turner Review Conference in London early this week.

She said ''many of the emerging countries, including India, are part of the global effort in search of a harmonised framework but certain key differences in perspectives in these two sets of economies need to be appreciated. The status of the financial sector of the emerging economies is different from that of the advanced economies with different set of imperatives having different implications for the trade off between financial stability on the one hand and financial development, financial inclusion and growth, on the other.'' Speaking on 'Philosophy and practice of financial sector regulation - Space for unorthodoxy', Ms Gopinath said there was inherent tension between the efficiency gains for individual institutions provided by centralised pooling of capital/liquidity and the objectives of host regulators/supervisors. Supervisors are accountable to the domestic depositors, creditors and policy holders and protecting the domestic financial system and therefore there may be justifiable reasons for requiring both capital and liquidity to be held locally, whether the presence is by way of a branch or subsidiary. In this regard, some of the short term efficiency gains may have to be compromised in the interest of broader financial system stability through containment of the contagion effects, she added.

--UNI

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