Experts against 'super regulator' concept in India

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Q: That's a point we are all unclear about. So do you think that this debate is a bit of a non starter all together then here?

Narayan: I would say misguided. It is misguided because of these two reports which are floating around and the views of the RBI against these reports are not being heard and somewhere in the noise that is being made about these reports I think the views of the RBI are not being taken into account nor are the views of the SEBI. And this is very important and it is a bit sad.
Q: You've told us what the UK experience is like - what do you think needs to be done in India? Are there any changes in the UK model or any adaptations that would probably make it work better in India or do you think that at a time like this we should not even be discussing this in India at all?

Desai: I think the Indian banking system is so insulated and it is almost not like a real banking system - it is so insulated, so protected that a kind of problem the UK banking system faces, the Indian banking system is not going to face. It has very limited foreign exposure. It doesn't actually get very much of investment banking activity. So, I think UK is a wrong model to think about but even in the UK and also in the US the idea of an over arching single regulator has been so discounted because what would be much better would be multiple regulator - perhaps it would be overlapped but then the probability that one of them would catch the problem what happens is super regulator if he fails to catch a problem then a whole system suffers and we certainly would now think that the FSA missed the bus in a big way. The Bank of England was better as a supervisor of banks.

Q: The last question to both of you and this is a slightly more ideological question not just in the India context - in its purest form isn't this super regulator concept viable because we've surely discovered over the last two-years that what we need the most is the need for better regulatory coordination and definitely to minimize any sort of regulatory arbitrage. So isn't that exactly what a super regulator does?

Desai: No I think the larger the regulator the more likely that a single failure would cost a lot of money. I am now against the idea of a single over arching regulator. Let there be multiple regulators and then the idea is that they would not all make the mistakes simultaneously of missing the crisis. It will be that one of them would pick it up and then they can talk to each other but a single regulator no matter how well coordinated no longer seem to be an effective way of regulating financial markets.

Q: Do you agree with that?

Narayan: I totally and entirely agree with that and if we look at 50-years of financial, fiscal and monetary management as well as market management we can confidently say that the multiple regulators have all functioned extremely professionally. If there is a lack of coordination, I think the Finance Ministry must have itself to blame that why is there a lack of coordination because we have seen that Ministry and the coordination was extremely going on very smoothly in those years.