Financial Market Developments

1
Financial Market Developments
Mumbai - India 23rd January 2006

• Howard Davies
• Director
• The London School of Economics

2
Five Questions

• Liquidity in the financial system
• Financial stability in an emerging economy
• The globalisation of financial markets
• Should India follow the UKs example in setting
  up a single regulator?
• Financial reforms in India and the road ahead

3
Indian Rupee (INR) to 1 US Dollar (USD) 1996 -
2006
4
Stockmarkets change Dec 31st 2004-Dec 30th
2005, terms
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Composition of financial stock, 2003
Trillions percent
Source McKinsey Global Institute Global
Financial Stock Database Global Insight
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Weak link between financial depth and wealth
7
Regional differences in financial stock
composition, 2003 Trillions percent
8
Three dimensions of change of the Bank of England

• Independence on interest rates
• Removal of banking supervision and debt
  management
• Monetary Policy Committee

9
Structure of Financial Regulation in 1997
10
Financial centres ranking in terms of regulatory
environment
Source Survey done by Corporation of London
11
Countries with Integrated Regulators
1986
1990
1991
1998
2000
2001
2002
2004
Kredittilsynet (Norway - March 1986)
Finanstilsynet (Denmark - January 1990)
Finansinspektionen (Sweden - July 1991)
Financial Supervisory Commission (Korea - April
1998)
Fjármálaeftirlitið (FME) (Iceland - June 1998)
Financial Services Agency (Japan - July 2000)
Finantsinspektioon (Estonia - May 2001)
FSA (UK - December 2001)
FSA fully integrated in 2001, but has existed
since October 1997
Finanzmarktaufsicht (Austria - April 2002)
BaFin (Germany - May 2002)
CBFA (Belgium - August 2002)
Agency of Financial Supervision (Kazakhstan -
April 2004)
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Financial Reporting Council

• Audit regulation
• Accounting standards
• Corporate Governance Codes

13
EU Takeover Directive

• Common (supposedly) rules across the EU on
  takeovers
• Statutory authorities in each member state
• In UK, reform of the Takeover Panel with new
  powers

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Self-Regulation

• Not as effective in highly competitive and
  diverse markets
• Can complement statutory regulation in some areas
• Cannot ensure comprehensive coverage, because of
  competition problems, so,
• Becoming less significant in developed markets