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Identify Risks'Identify Risks' will focus on risk identification at both the micro and the macro levels. Occasionally, it will offer solutions for managing the same. Note: The views expressed here are personal. November 02, 2011 Lending for the purpose of capital injection...Is it wrong for a Bank or a Financial Institution to lend to certain entities (X) which then invest those money in that Bank/FI equity? And what if the entity X is the government? Continue reading "Lending for the purpose of capital injection..." Posted by Aniruddha Godbole at 03:08 PM | Comments (0) October 26, 2011 India's insurance against trade warsThe notion of mutually assured destruction (MAD) helps prevent a direct full-blown military confrontation amongst nuclear weapons states. This has been an important pillar of the global security architecture in the post-second world war era. Continue reading "India's insurance against trade wars" Posted by Aniruddha Godbole at 04:16 PM | Comments (0) June 01, 2011 Tail risk and Compensation in the Financial SectorPost the North Atlantic Financial Crisis of 2007-08 there has been an increased emphasis on deferred compensation and stock compensation. Is this meaningful? Continue reading "Tail risk and Compensation in the Financial Sector" Posted by Aniruddha Godbole at 07:12 PM | Comments (0) May 18, 2011 Economics Professors' favourite Economics blogs...Thanks to the recent paper "Economics Professors’ Favorite Continue reading "Economics Professors' favourite Economics blogs..." Posted by Aniruddha Godbole at 05:43 PM | Comments (0) May 08, 2011 India's inverted Tobin tax?Last month the Government of India notified a service tax for corporate forex transactions. Continue reading "India's inverted Tobin tax?" Posted by Aniruddha Godbole at 03:57 PM | Comments (0) March 19, 2011 Monetary Policy Operating Procedures in IndiaReserve Bank of India's working group on Operating procedure of Monetary Policy report was released by the RBI on its website on 16-Mar-2011. My comments on the report are: Continue reading "Monetary Policy Operating Procedures in India" Posted by Aniruddha Godbole at 08:28 AM | Comments (0) March 16, 2011 A review of the recent books by Y.V. Reddy and Raghuram RajanFormer Reserve Bank of India Governor Y.V. Reddy's book "Global Crisis, Recession and Uneven Recovery (Jan 2011)" and University of Chicago's Professor Raghuram G. Rajan's book "Fault Lines: How Hidden Fractures Still Threaten the World Economy" (May 2010) were released in the last twelve months. Here is my humble opinion of both of these must-read books. Continue reading "A review of the recent books by Y.V. Reddy and Raghuram Rajan" Posted by Aniruddha Godbole at 07:25 PM | Comments (0) March 12, 2011 Political pressure and (un)easy credit...A sub-committee of the Reserve Bank of India's Board submitted a report to Study Issues and Concerns in the MFI sector. It is available here. This report was submitted in January 2011. Continue reading "Political pressure and (un)easy credit..." Posted by Aniruddha Godbole at 07:11 PM | Comments (0) January 23, 2011 Government of India's Inflation Indexed Bonds...The Reserve Bank of India released its second discussion paper on inflation indexed bonds last month (The first one was released in May 2004). In the past I have argued in favour of inflation indexed bonds in my opinion piece "Winning the battle against inflation" (Mint, 24-May-2010). However, the instrument design in recent discussion paper has some major design flaws. Continue reading "Government of India's Inflation Indexed Bonds..." Posted by Aniruddha Godbole at 01:59 PM | Comments (0) November 28, 2010 Monetary Policy Operating Procedures in India.In India, the paradox of monetary policy is that when the central bank changes its policy interest rates, it generally does not result in a corresponding change in bank lending interest rates. Last month, the Reserve Bank of India (RBI) set up a panel to review its existing monetary policy operating procedures. India’s central bank currently operates a liquidity adjustment facility (LAF). Under it, the overnight repo rate is the one at which banks borrow from the central bank for one day, while the overnight reverse repo rate is the rate at which banks lend to the central bank for one day. This system is, in some ways, well suited for managing daily mismatches between a bank’s cash inflows and cash outflows: It can help banks tide over daily liquidity deficit or surplus situations. But that’s not how the financial system works in developed countries. Major central banks such as the European Central Bank, the US Federal Reserve, the Bank of Japan and even most members of the South East Asian Central Banks are similar in their attempt to achieve a structural liquidity deficit at most times—unlike in India, where banks actually hold surplus cash often. As a result, the banking system in the euro zone or the US is generally required to borrow from the central bank. As the central bank becomes the monopolist supplier of liquidity, this state of structural liquidity deficit ensures that the policy interest rate becomes the marginal cost of funds. RBI needs its policy rate to matter for banks’ funding. If India is to make its policy transmission as effective as, say, the euro zone’s, it may follow a six-point approach:
Continue reading "Monetary Policy Operating Procedures in India." Posted by Aniruddha Godbole at 08:10 AM | Comments (2) October 23, 2010 Price adjusted broad dollar index...end of dollar weakness?The price adjusted broad dollar index published by the US Federal Reserve shows that the dollar has had overvaluation/undervalation within around 15% since January 1986 (also from January 1973 but for the May-1984 to Dec-1986 period)---for graph and data pl click on Download file. The monthly number for September 2010 shows an undervaluation of 13%. Posted by Aniruddha Godbole at 06:57 PM | Comments (0) August 28, 2010 Financial InnovationWhat is financial innovation & is financial innovation desirable? Like so many topics, my thinking on this is evolving. I look forward to reader comments. Posted by Aniruddha Godbole at 11:40 AM | Comments (2) May 26, 2010 The good financial innovations...The North Atlantic Financial Crisis has made most people suspicious of financial innovations. In this post I list eleven good financial innovations. Continue reading "The good financial innovations..." Posted by Aniruddha Godbole at 12:15 PM | Comments (5) January 26, 2010 Reforming the money systemsWorldwide the extant money systems are bank debt fiat systems ---the money is generated by debits and credits made by commercial banks (currency notes are a relatively small portion of our money). Unrestricted creation of this fiat money can lead to uncontrollable inflation. Hence, a monetary authority is required to police the money creation by commercial banks. While this money is not linked to the not-so-useful gold, like bullion money the bank debt fiat money too is scarce. The function of the bank debt money as a “store of value” combined with the positive interest rates, encourages hoarding of this money. This scarcity adversely affects the “medium of exchange” function of money—say ten entities may not be able to exchange goods and services amongst themselves if they lack money. Continue reading "Reforming the money systems" Posted by Aniruddha Godbole at 12:24 PM | Comments (1) November 30, 2009 Mutual Funds in India: Lending to top-rated corporates below call money ratesIn recent times, the money market in India has been flush with liquidity. Continue reading "Mutual Funds in India: Lending to top-rated corporates below call money rates" Posted by Aniruddha Godbole at 04:33 PM | Comments (2) |
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