financial crisis ”, note number 13. bis central bankers ’ speeches effective and comprehensive manner, which in turn enhances transparency and causes informed decision taking. robust information technology systems are a necessary condition for supporting the mis framework as the quality of risk information that the boards and the top management receive depends largely on the quality and robustness of the information technology systems. 11 in addition to prescribing the risk appetite for the institution, the board also needs to lay down appropriate risk strategy and ensure that this is institutionalised throughout the organization. this would entail, aligning risk management processes with the overall business strategy, clearly defining the roles and responsibilities down the hierarchy, establishing accountability and reinforcing change with communication and training. the board and the senior management oversight must be supplemented with effective leadership by the chairman and the chief executive officer ( ceo ), and informed non - executive directors. the boards must get much more intimately involved in risk matters and have a firmer understanding of the key risks faced by the business. effective risk governance also demands that each director is aware of the breadth of risks faced by the bank. directors add value to the board when they have financial expertise, are aware of risk fundamentals and techniques, and are able to manage dynamics with executives. board level risk committees have an important role to play in the overall risk governance framework. apart from monitoring the firm ’ s strategic - risk profile on an on - going basis, such committees would also be responsible for defining the firm ’ s overall risk appetite ; approving major transactions above a firm ’ s risk threshold, and ; establishing limit structures and risk policies for use within individual businesses. presence of a chief risk officer ( cro ) is expected to strengthen the risk management framework. however, independence of the cro, with necessary stature to influence decisions, would be a critical element in ensuring the effectiveness of the post in risk management process as also the strategic risk management related decisions. the cro must report directly to the ceo and the board and be responsible for all risks, risk management and control functions. another important requirement is integrating risk with business strategy and compensation. risk – and return on risk – need to be core component of any performance measure, and should be explicitly factored into incentive and compensation schemes. compensation must be formally aligned with actual performance, such as through adding more rigorous risk - based measures to scorecards. this would also involve moving to longer vesting periods, and increasing deferred compensation. the fragmented organisation of

##bs is working on an expected loss - based countercyclical provisioning methodology in consultation with iasb which is likely to take time. in india, banks have a stock of floating provisions which we have not permitted to be used, except under a situation of systemic stress. while the floating provisions may serve the purpose of countercyclical provision, a framework is necessary for allowing its use. as an interim measure, we have developed a methodology based on the spanish dynamic provisioning system which has been put up for public comments. securitisation in the light of the lessons learnt from the global crisis the securitisation guidelines have been extensively redesigned to dissuade the “ originate to distribute ” model and to build the “ skin in the game ” by prescribing minimum holding period ( mhp ) prior to securitisation and minimum retention requirement ( mrr ) after securitisation. bis central bankers ’ speeches financial stability and development council ( fsdc ) one of the prominent lessons taught by the crisis is to have a systemic view of risk and to be in readiness to take corrective action as and when required, which calls for a close coordination among different regulators. in order to have a formalised coordination mechanism, a financial stability and development council ( fsdc ) under the chairmanship of the finance minister has been constituted. a sub - committee of fsdc under the chairmanship of the governor, reserve bank of india ensures coordination amongst the regulators during normal times. setting up of holding companies at present, most of the financial groups in india are led by banks and organised under the bank subsidiary model. this model, however, puts the onus on the parent bank for corporate governance, performance and capital requirement of the subsidiaries. besides, the parent carries very substantial reputational risk. the working group on “ introduction of holding company structure in india for banks ” has recommended migration of major financial conglomerates to the holding company structure to address these limitations to some extent. necessary legal amendments will have to be put in place for facilitating such migration. financial sector legislative reforms commission ( fslrc ) sound and unambiguous legislative framework is a prerequisite for an efficient regulatory system. at present, in india, there are about 60 acts and multiple rules and regulations, many of which are archaic and the large number of amendments have made the laws ambiguous and complex. government of india has constituted a financial sector legislative reforms commission ( fslrc ) to