Emerging Challenges for Financial Regulation at National Level

Abstract

Through this article effort has been made to identify key regulatory tasks and objectives of RBI as regulator of key financial markets. The Increase in systemic risk due to greater integrity of the Indian market with the global market and with emergence of new markets and instruments have made the task of regulator most difficult as it has to constantly keep up pace with the changing marketplace and prescribe new regulatory safeguards for all market participants. The effort is to make unregulated or poorly regulated markets & instruments under better regulation. However, there are border problem between regulators over the domain of the financial markets & institutions. The paper tries to discuss the policy dilemmas and option to tackle emerging challenges, need to revisit the regulatory framework to make it more effective. It also discusses Pro-cyclicality as a special case of systemic risk and the need to move from Basel-II to Basel-III to ensure adequate bank liquidity during the credit crunch situations. This will however affect the regulatory capital the banks need to keep towards capital charge of its risky asset and the provision of additional capital buffer in the form of contra-cyclical capital will be anything but easy in implementation due to significant technical work required in understanding of business cycles. Finally, areas of further research have been identified in the paper.