euro area - wide interbank money market developed rapidly. this is a key component – indeed, perhaps the key component – of the financial infrastructure of the euro zone. its rapid development owes much to the major efforts of the european central bank in elaborating its monetary policy procedures and its liquidity operations. to be sure, european financial integration has not proceeded at the same pace across all sectors and markets. integration of the retail banking markets, for instance, has remained limited, reflecting the persistence of legal, institutional and regulatory differences. but things are moving. even a cursory reading of the financial press shows that financial integration is making visible progress almost day by day. the current financial market turmoil but how does the current turmoil in global financial markets impact on the positive picture that i have just sketched for you? let me recall that this turmoil follows a prolonged period of broadly based and aggressive risk - taking that was reflected in unusually low risk premia and low volatility across many asset classes. thus, prior to last summer, many careful observers believed that the price of risk was too low – so an increase in risk premia was widely seen as healthy from a financial stability perspective. there was a large element of wisdom in this point of view. nevertheless, when risk aversion suddenly jumped last summer there were major surprises. a first surprise was that a shock in one specific segment of the mortgage sector in the united states led to severe adverse effects not only in that country, but also in the euro zone, the united kingdom and canada. the impact in the euro zone was a surprise to many observers because increasing financial integration had greatly strengthened the european financial system. a second surprise was the sudden evaporation of liquidity in the major interbank markets, which has persisted since the summer and which has transmitted the tensions in credit markets to the very heart of the international financial system. the distortions in the interbank money markets have occurred mainly in the united states, the euro zone and a few other key economies, such as the united kingdom. they are much less severe in japan ; and major emerging market economies have weathered the global turmoil relatively well so far. in the euro area, the spread between the market expectation of the overnight interest rate during the next three months ( the eonia swap interest rate ) and the rate at which commercial banks can borrow from each other over the same period – the three - month libor rate – suddenly jumped in august and has stayed elevated since, while

regard, if they so like, and complete the process. the package was rolled out in january 2006 and it was envisaged that all regulatory actions including compliance to section 11 ( 1 ) of the banking regulation act, 1949 ( as applicable to co - operatives ) should be kept in abeyance for three years. three years have already passed. however, only 14 states out of 25, which have signed mou have been able to amend the co - operative societies act. this has resulted in slow implementation of the package. as the financial assistance under the package has to be released only on the implementation of legal and institutional reforms, as against total estimated financial assistance of rs. 13, 596 crore envisaged in the revival package, nabard has, so far ( by the end february 2010 ), released an amount of rs. 7, 561. 39 crore towards government of india ’ s share for recapitalisation of 41, 295 pacs in twelve states, while the state governments have released rs. 688. 82 crore as their share. it is imperative for all the states that have executed the mou for implementation of the package to carry out necessary amendments to the respective state cooperative societies acts without any further delay. any delay only delays capitalization and make the system further weaker. 7. further, after amendment to the co - operative societies act, all states should follow the spirit behind the amendment whole - heartedly so that the rural co - operative credit structure can operate in a healthy way. legal and institutional reforms have been recommended under the package to bring about improvement in credit discipline and financial management of the cooperative credit structure. they are expected to enable and induce rejuvenation of the structure by promoting voluntary, democratic, member - centric, self - governing mutual thrift and credit institutions. the state government ’ s role in this scenario is expected to be not one of intrusive patronage, but one of promoting good and skilled management. this process may be slower than one would wish, but it would certainly result in a stronger and healthier structure to serve the needs of the rural people. 8. as you are aware, a large number of state co - operative banks and central cooperative banks were functioning without a banking license for decades. the committee on financial sector assessment recommended that no unlicensed co - operative banks should be allowed to function beyond 2012. reserve bank took a decision to license those cooperative banks which have capital to risk weighted assets ratio (