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Financial Market Developments

Financial Market Developments. Mumbai - India 23 rd January 2006. Howard Davies Director The London School of Economics. Five Questions. Liquidity in the financial system Financial stability in an emerging economy The globalisation of financial markets

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Financial Market Developments

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  1. Financial Market Developments Mumbai - India23rd 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 UK’s 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

  5. Composition of financial stock, 2003 $ Trillions; percent Source : McKinsey Global Institute Global Financial Stock Database; Global Insight

  6. 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 fully integrated in 2001, but has existed since October 1997 FSA (UK - December 2001)* Finanzmarktaufsicht (Austria - April 2002) BaFin (Germany - May 2002) CBFA (Belgium - August 2002) Agency of Financial Supervision (Kazakhstan - April 2004)

  12. 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

  14. 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

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