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Financial stability: Underlining context

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  • Ashima Goyal

    (Indira Gandhi Institute of Development Research)

Abstract

The paper argues that context is important in discussions of financial stability. It explores weaknesses in domestic and international reforms and ways of overcoming them, based on mitigating the fundamental failures finance is subject to. Relevant market failures need to be taken into account even in the design of monetary policy regimes such as inflation targeting. Rather than blind following of international prescriptions better alignment to domestic structure and needs whether in monetary policy, restructuring financial regulators, capital adequacy criteria and bank balance sheets is required. It argues marginal changes in India's financial regulatory structure will suffice, brings out a possible trade-off between capital adequacy and leverage caps following from special features of Indian regulations some of which need to be preserved, gives the history behind the rise in non-performing assets, and points to technological changes that may make financial inclusion more compatible with financial stability. The possibility of coordinating on simple leverage reducing measures with good incentive possibilities should be taken up in global dialogue, and regional alternatives supported as a corrective for asymmetries in bargaining power.

Suggested Citation

  • Ashima Goyal, 2015. "Financial stability: Underlining context," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2015-014, Indira Gandhi Institute of Development Research, Mumbai, India.
    • Handle: RePEc:ind:igiwpp:2015-014
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    File URL: http://www.igidr.ac.in/pdf/publication/WP-2015-014.pdf
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    References listed on IDEAS

    as
    1. Ashima Goyal & Shruti Tripathi, 2012. "Regulations and price discovery: oil spot and futures markets," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2012-016, Indira Gandhi Institute of Development Research, Mumbai, India.
    2. Anand Sinha, 2011. "Macroprudential Policies: Indian Experience," Working Papers id:4218, eSocialSciences.
    3. Maendra Dev, S., 2015. "India Development Report 2015," OUP Catalogue, Oxford University Press, number 9780199459452.
    4. Raghuram Rajan, 2015. "Competitive monetary easing: is it yesterday once more?," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 8(1-2), pages 5-16, July.
    5. Anat Admati & Martin Hellwig, 2013. "The Bankers' New Clothes: What's Wrong with Banking and What to Do about It," Economics Books, Princeton University Press, edition 1, volume 1, number 9929.
    6. Hyun Song Shin & Kwanho Shin, 2011. "Procyclicality and Monetary Aggregates," NBER Working Papers 16836, National Bureau of Economic Research, Inc.
    7. Ashima Goyal, 2014. "External shocks," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2014-046, Indira Gandhi Institute of Development Research, Mumbai, India.
    8. Jonathan David Ostry & Atish R. Ghosh & Anton Korinek, 2012. "Multilateral Aspects of Managing the Capital Account," IMF Staff Discussion Notes 12/10, International Monetary Fund.
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    More about this item

    Keywords

    Financial stability and reforms; market failures; leverage caps; non-performing assets; inflation targeting;
    All these keywords.

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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