Reflections on Regulatory Challenges and Dilemmas Speech

It is indeed my privilege to be addressing you today in this Conference in which officials from industry and banking sector are participating. Today, I want to reflect on some of the challenges and dilemmas that we face as regulators of the banking system. A few of these challenges and dilemmas are in the context of the rapidly evolving regulatory landscape in the aftermath of the crisis, very aptly reflected in the theme of this Conference ‘Global Banking: Paradigm Shift’. 2. It has become almost inevitable these days that the speeches start off referring to the financial crisis and, I wish to make no exception today. I would briefly allude to the crisis to provide a context for some of the issues I would be touching upon. I recall a quip, ‘Just when we thought we knew all the answers, someone changed the questions ’ and I think that the saying best describes what the crisis has done to the hitherto accepted regulators ’ wisdom. The role of regulators has always been very challenging, as they need to keep running just to stay put in a fast-evolving financial landscape and have to run harder and faster, to be ahead of the curve. If anything, the crisis has made their role that much harder. 3. There are many reasons attributed to the outbreak of crisis and the most notable ones are: inadequate quantity and quality of capital, insufficient liquidity buffers, excessively leveraged financial institutions, inadequate coverage of certain risks, absence of a regulatory framework for addressing systemic risks, proliferation of opaque and poorly understood financial products in search of yields in the backdrop of an era of ‘great moderation’, perverse incentive structure in securitisation process, lack of transparency in over-the-counter (OTC) markets particularly the credit default swap (CDS), inadequat