duvvuri subbarao : a revolution in monetary policy welcome remarks by dr duvvuri subbarao, governor of the reserve bank of india, at the 15th c d deshmukh memorial lecture on “ a revolution in monetary policy – lessons in the wake of the global financial crisis ” delivered by prof joseph stiglitz, mumbai, 3 january 2013. * * * 1. on behalf of the reserve bank of india, i have great pleasure in welcoming prof. joseph e. stiglitz, who will shortly be delivering the c. d. deshmukh memorial lecture. also, a warm welcome to mrs. anya stiglitz who has accompanied him. i am delighted to acknowledge the presence here of the family members of sir chintaman deshmukh – shri atul deshmukh, smt. sheetala deshmukh, and their children, ashish and priyanka, prof. sunita chitnis and her son dr. ajay chitnis. your presence here means a lot to us. finally, and importantly, a warm welcome to all our invitees to this prestigious lecture. c. d. deshmukh 2. sir chintaman d. deshmukh has a special place in the history of the reserve bank. he was the first indian governor of the reserve bank, and served the institution with great distinction and dignity from august 1943 to june 1949. he presided over the transformation of the reserve bank from a private shareholders ’ bank to a nationalised institution and was the intellectual force behind the enactment of a comprehensive legislation for the regulation of banking companies which has stood the test of time. governor deshmukh participated actively in the establishment of the bretton woods institutions in 1945 and played a critical role in managing india ’ s nascent economy as we confronted the challenges of war financing following the second world war. 3. after leaving the reserve bank, shri deshmukh went on to become the finance minister of india, a career graph repeated by our current prime minister, dr. manmohan singh nearly forty years later. shri deshmukh brought to the office of the finance minister a passion for newly independent india ’ s development and a humane and inclusive vision for nation building. by all accounts, sir chintaman deshmukh was one of the finest public policy intellectuals of post - independence india. 4. the reserve bank instituted the c. d. deshm

##ocus on the issue of “ compliance ” in banks. let me, therefore, begin by highlighting some of these recent instances of misdemeanors by banks in compliance - related matters which have had debilitating consequences in the form of massive penalties. global episodes 3. i ) in 2012, jp morgan chase & co was involved in the so - called “ london whale ” trades in the bank ’ s “ synthetic credit portfolio ” comprising of credit default swaps and related instruments. the bank ’ s trading strategy, which intended to serve as a hedge against credit risk, was unscrupulously used by its traders to build risky positions, thereby raising doubts about the efficacy of the internal compliance process. in a scathing indictment of the internal control and compliance machinery, jaime dimon, the ceo of j. p. morgan remarked, “ chief investment office, particularly the synthetic credit portfolio, should have gotten more scrutiny from both senior management, and i include myself in that, and the firm - wide risk control function. … make sure that people on risk committees are always asking questions, sharing information, and that you have very, very granular limits when you ’ re taking risk. …. in the rest of the company we have those disciplines in place. we bis central bankers ’ speeches didn ’ t have it here. ” 1 the bank eventually lost more than us $ 6 billion and ended up paying us $ 920 million in penalties for settling probes by the uk and us investigators. as the losses piled up, the bank also misled investors and public through incorrect disclosures and withheld information from the regulators. ii ) also in 2012, hsbc holdings was hauled up by regulators of three jurisdictions for antimoney laundering ( aml ) / combating financial terrorism ( cft ) violations in transferring money illegally through its subsidiaries. several lapses were identified in hsbc ’ s aml compliance which included ignoring internal warnings on inadequacy of internal monitoring systems, mis - categorization of mexico as a “ low risk ” country leading to transactions being exempt from detailed monitoring, etc. a fine of us $ 1. 9 billion was imposed on hsbc holdings. iii ) another gross misdemeanour that surfaced in 2012 involved long term manipulation of the libor rate by multiple banks. the investigations revealed that the rate contributions made by banks to determine the sacrosanct benchmark rate, which is used to settle trillions of dollars of loans and transactions