the sovereign itself may not be the agency best suited to take on the mantle of financial stability – in most jurisdictions, including india, it is the central banks which have the natural mandate for this responsibility. in the indian context, the proposed structure attempts to strike a balance between the government ’ s objective of ensuring financial stability to reduce the probability of a crisis and the operative bis central bankers ’ speeches arrangements involving the central bank and other regulators. while the sub - committee under the governor of the reserve bank is expected to evolve as a more active, hands - on body for financial stability in normal times, the fsdc would have broad oversight and will assume central role in crisis times. 30. there is another interesting dimension to the mandate of the fsdc. note that the acronym also includes the letter “ d ” which stands for development. in the budget speech, the finance minister indicated that the development role will cover issues like financial inclusion and financial literacy which, by their very nature, are shared objectives of the government and the regulators and have to be pursued synergistically. i am pointing this out to emphasize that in india we view financial inclusion as a fundamental aspect of financial stability. 31. since the reserve bank has historically had a macroprudential overview, not all the governance issues surrounding financial stability are new to us. nevertheless, there are always unknown unknowns, and the system should be able to respond to them when they turn into known unknowns. now that the regulatory architecture of the fsdc is in place, it is important for the government and the regulators in india to develop conventions and practices which will serve the goal of preserving financial stability without eroding the autonomy of the regulators. summing up 32. let me now sum up. i have highlighted why financial stability is important for the macroeconomy and for the central banks. i have argued that central banks should have a substantive, although not exclusive, responsibility for financial stability even as this might involve the central banks having to manage some critical trade - offs. it is in recognition of the synergy between the basic monetary functions that the central bank conducts and of the policies required for preserving financial stability that, across several jurisdictions, including in more mature advanced economies, there is a post - crisis move towards giving central banks more formalized, explicit responsibility for financial stability. 33. at the same time, there is recognition everywhere, regardless of the regulatory architecture, that preserving financial stability requires coordination among regulators, and between

preserving financial stability – drawing from its wide mandate as the regulator of the banking system and of the payment and settlement systems, regulator of the money, forex, government securities and credit markets, as banker to banks, as also the lender - of - the last resort. this unique combination of responsibilities for monetary policy combined with macroprudential regulation and microprudential supervision with an implicit mandate for systemic oversight has allowed the reserve bank to exploit the synergies across various dimensions. the micro - level information coming from supervision of individual institutions has been a valuable input for shaping the macro perspective. on the other hand, the broad understanding from macroprudential regulation has been effective in instituting prudential safeguards at the micro institution level. 27. even as the reserve bank has implicitly been the systemic regulator in india, financial stability cannot be its exclusive responsibility. other financial sector regulators such as the securities and exchange board of india ( sebi ), the insurance regulatory and development authority ( irda ) and the pension funds regulatory and development authority ( pfrda ) too have important responsibilities. beyond the regulators, the crisis has demonstrated the importance of the coordinating role the government has to play, especially in crisis times. 28. across most jurisdictions, the post - crisis focus has been on shifting responsibilities and mandates among regulators. india has been somewhat different in this regard ; our focus has been more on establishing an institutional mechanism for coordination among regulators and between the regulators and the government. this has culminated in the establishment, in december 2010, of the financial stability and development council ( fsdc ) to be chaired by the finance minister. the fsdc is to be assisted by a sub - committee to be chaired by the governor of the reserve bank. this sub - committee has replaced the erstwhile high level coordination committee on financial markets ( hlcc - fm ). the government has held out a clear assurance that the setting up of the fsdc will not in any way erode the autonomy of the regulators. 29. in terms of governance structure, the two - tier framework of fsdc and the subcommittee presents an interesting case. the crisis has clearly demonstrated the need for explicit delineation of responsibilities for financial stability across agencies and an agreed protocol for coordination among such agencies. the crisis has at the same time brought forth the critical stake of the sovereign in ensuring financial stability – the spillover costs in a crisis have to be borne by the governments. however,