fail without destabilising the entire financial system. the possibility of failure is fundamental to any market economy and it must apply to banks. as the economist allen meltzer said : “ capitalism without failure is like religion without sin – it doesn ’ t work ”. only if banks see a realistic threat of failure they will have an incentive to manage risks in a prudent manner. in europe, we have recently taken some steps in the right direction. from 2016 onwards, we will have a european resolution mechanism that allows us to resolve failing banks without destabilising the financial system and without burdening the taxpayers. in my view, this single resolution mechanism has the potential to restore the balance between liability and control. thus, it will have a fundamental and positive effect on banks ’ risk culture. at the global level, the g20 recently agreed upon a proposal that requires global systemically important banks to improve their capital structure. in particular, these banks will need to ensure a minimum amount of total loss - absorbing capacity, which may be as much as 20 %, including the minimum capital requirements. this will ensure that, in case of a bank failure, it is the owner and the creditors that will have to bear the costs, not the taxpayers. this will also strengthen the incentives of banks to engage in prudent risk management. however, we have to look beyond incentives for banks. we also have to look at incentives for those who work in banks. according to the financial stability board, a crucial element of a sound risk culture is the alignment of compensation with prudent risk - taking. in the past, compensation schemes were often skewed toward rewarding short - term success without taking into account related risks. consequently, the european union has taken action and implemented new rules. according to these rules, the variable components of bank managers ’ remuneration are restricted to hellmann, t f ; murdock, k c ; stiglitz, j e ( 2000 ), liberalization, moral hazard in banking, and prudential regulation : are capital requirements enough? in the american economic review, vol 90, no 1, pp 147 – 165. bis central bankers ’ speeches 100 % of the fixed components. if shareholders agree, this can be increased to 200 %. furthermore, banks have to establish a remuneration committee and meet several new disclosure requirements on remuneration. nevertheless, we certainly have to be wary of regulatory arbitrage and unintended consequences

duvvuri subbarao : india – managing the impact of the global financial crisis speech by dr duvvuri subbarao, governor of the reserve bank of india, at the confederation of indian industry's national conference and annual session 2009, new delhi, 26 march 2009. * * * introduction less than a year ago, much of what has happened in the indian economy since last october would have been hard to anticipate. i recall, around this time last year, the most frequently asked questions ( faqs ) were, what are the factors that put india on a high growth trajectory and what can we do to remain there? today, the faq is, when and how do we get back on to the high growth trajectory? the sharp turn around in the faqs summarizes in a nutshell the impact of the global financial crisis on india. global outlook the global economic outlook deteriorated sharply over the last quarter. in a sign of the ferocity of the down turn, the imf marked down, yet again, its estimate for global growth in 2009 to a range of ( - ) 1. 0 to ( - ) 0. 5 per cent, the first global contraction in 60 years. with all the advanced economies – the united states, europe and japan – having firmly gone into recession, the contagion of the crisis from the financial sector to the real sector has been unforgiving and total. recent evidence suggests that contractionary forces are strong : demand has slumped, production is plunging, job losses are rising and credit markets remain in seizure. most worryingly, world trade – the main channel through which the downturn will get transmitted on the way forward – is projected to contract by 2. 8 per cent in 2009, the fastest pace of shrinkage in the last 80 years. policy making around the world is in clearly uncharted territory. governments and central banks across countries have responded to the crisis through big, aggressive and unconventional measures. there is a contentious debate on whether these measures are adequate and appropriate, and when, if at all, they will start to show results. there has also been a separate debate on how abandoning the rule book, driven by the tyranny of the shortterm, is compromising medium - term sustainability. what is clearly beyond debate though is that this great recession of 2008 / 09 is going to be deeper and the recovery longer than earlier thought. decoupling hypothesis and emerging economies contrary to the