while strengthening the micro prudential aspect. i will then also talk about some aspects of the regulatory framework in india. macro - prudential regulation financial regulation was founded on the assumption that making each bank safe makes the system safe. this fallacy of composition probably explains lack of regulatory action even while the risks of underpricing, high systemic leverage and rapid credit expansion were evident. in recognition of the fact that the costs of systemic crisis can become excessive, significant work is ongoing at the international level in making prudential regulation more macro oriented and system focused. in this current context, the deliberations at various fora are taking on board a specific connotation of macro - prudential regulation – buffering the system from the vagaries of the boom - bust cycles through countercyclical tools. the tools being examined are broadly two : first, reducing the risk of system wide spillovers and second, addressing the negative feedback loops induced by pro - cyclical interactions between individual institutions and the system as a whole. addressing systemic risk systemic risk is defined as a risk of disruption in the financial system that is caused by an impairment of all parts of the financial system and has the potential to have serious negative consequences for the real economy. the objective of the overlay of the macroprudential framework is to contain the risk of systemic contagion. systemically important entities : the identification of systemically important institutions can be on the basis of their size, connectedness to the system or even the business model followed. the objective is to identify the negative externalities such institutions might generate. both qualitative and quantitative criteria will be relevant ; whether the bank is largely a domestic focused bank or multinational, complex or a constellation of subsidiaries and interconnectedness with the system. on interconnectedness, an institution is clearly systemic if it is a dominant player in the inter - bank market or other funding and derivatives markets. systemic capital surcharge : on account of the interconnected nature of the financial system, supervision of individual institutions may not help in proper assessment of risk at the system level. system - wide risks may be much larger than the sum total of risks identified at individual institution levels, which could be on account of institutions that are systemically important and that generate negative externalities or risks for the system. there is therefore a proposal to levy a “ systemic capital charge ” on banks and institutions which pose potential systemic risks. this would, however, require identification of systemically

their own business and most of them still need to be absorbed by enterprises, in addition to micro credit extension, we should strengthen credit support to small and medium sized enterprises, in particular small labor - intensive enterprises which can absorb many laid - off workers. according to our investigation and feedbacks from relevant parties, the following problems exist in implementation of micro credit policy : first, lack of policy publicity and many local governments did not understand or misunderstood the policy ; second, in some places complicated credit approval procedures and high guarantee requirements hindered borrowing ; third, lack of proper projects and high credit management cost discouraged lending activity ; and fourth, in some places, lack of coordination among different departments resulted in low efficiency. on march 18th, given the emerged problems in reemployment efforts and experiences from different regions, the people ’ s bank of china, the ministry of finance and the ministry of labor and social security jointly issued the circular on promoting micro credit to unemployed laid - off workers ( bank document 2004 no. 51 ) to adjust and improve relevant policies. promoting the implementation of micro credit policy relies on the following five aspects : 1. improve risk - sharing and compensatory mechanism for micro credit ; effectively streamline loan guarantee and approval procedures. the core issue of enlarging micro credit extension is to ensure risk compensation. at the beginning, various guarantee funds were set up by local fiscal departments and managed by guarantee institutions to share micro credit risks. but in practices, many guarantee institutions require laid - off workers to provide counter guarantee. the purpose of guarantee fund is to disseminate micro credit risks and possible losses incurred by start - up businesses, with proper counter guarantee, a laid - off worker could borrow directly from a bank without resort to the guarantee fund. the reason they go to guarantee fund is just because of their high risk profile. in some places, counter guarantee requirements restrained substantially micro credit extension. no. 51 bank document clarifies risk - sharing principles. if some regions have already chosen guarantee institutions, counter guarantee cannot exceed 30 percent of the total credit extension ; furthermore, with strengthened credit management system, each region should abolish counter guarantee requirement gradually. for regions that have not chosen guarantee institutions, their fiscal departments can deposit guarantee funds into banks which can extend micro credits to the laid - off workers independently. in the event the extend loans went sour, 20 percent of the resulted losses should be borne by the issuing bank and the other 80 percent be absorbed by the guarantee funds,