three in isolation have their limitations and are effective differentially based on the overall systemic contexts such as the level of maturity of the economy, and hence the markets, the efficacy of the legal system and the resolution mechanisms in place, the prevalent business culture etc. market discipline may not be very effective till transparent disclosure requirements are put in place. even then the ability of the market to discipline the constituents would depend on its own structural strength as well as the economic setting in which it operates. therefore a significant level of reliance has to be placed on internal control effected through board oversight. an important factor, in this context, that defines the business culture is what has come to be termed as “ corporate governance ”. it is a nebulous concept whose essential elements were part of the business ethos in all societies but which has in recent times come under sharp focus and acquired a heightened significance partly due to the process of globalization and the increasingly overarching role of business on the society at large. from a banking industry perspective, corporate governance involves the manner in which the business and affairs of individual institutions are governed by their boards of directors and senior management, affecting how banks1 : • set corporate objectives ( including generating economic returns to owners ) ; • run the day - to - day operations of the business ; • consider the interests of recognised stakeholders ; • align corporate activities and behaviours with the expectation that banks will operate in a safe and sound manner, and in compliance with applicable laws and regulations ; • protect the interests of depositors. the two major concerns that arise in context of corporate governance in banks and need to be addressed are ( i ) the concentration of ownership and ( ii ) the type of people who control the bank. diversified ownership becomes a necessary postulate as it provides balancing stakes which may not be possible otherwise, even in the case of voting right limits. a related concern is the ‘ quality ’ of control over the functioning of banks manifest in the credentials of the various stakeholders. basel committee on banking supervision, ‘ enhancing corporate governance in banking organisations ’, 1999. a survey of the regulatory regimes in major countries brings out that most of the regimes address these two concerns through a set of restrictions on the ownership of bank stock on the following parameters : • quantum of ownership by single person / associated persons • ownership restrictions for domestic entities based on nature of entity • non - bank financial firms • non - financial entities • other banks • ownership restrictions for foreign entities major inferences that can be drawn from the

the risk of failure. moreover, the economic metabolism is a process that is inevitably accompanied by pain for some sectors. therefore, it is essential to establish social safety nets that mitigate the pain for firms and individuals and allow them to tackle new business ventures with a sense of security. finally, the fourth area in which policy makers play a role is in the appropriate conduct of fiscal and monetary policies to reduce swings in economic activity and prices. less uncertainty over future economic conditions and inflation means that, to that extent, firms can pursue innovation without concern. however, while the provision of safety nets and the implementation of countercyclical policies are desirable and effective measures when the economy suffers a large temporary shock, if those measures go too far, they may impede the economic metabolism and even reduce productivity. for that reason, policy makers need to strike a delicate balance in their policy conduct. on this point, there have been various discussions regarding the current events in europe. since the lehman shock, aggressive fiscal policies implemented in many countries played a significant role in stemming the economic plunge. however, at the same time, fiscal policies are not a “ cornucopia ” and eventually nations have to repay their public debt through the value added generated by economic activity. therefore, confidence in fiscal sustainability is critical and once it is lost, economic activity can be severely hurt through rapid changes in financial markets. keeping this point in mind, policy makers should work to appropriately conduct policies so as to maintain sufficient market confidence. in this regard, current events seem to have served as a “ wakeup call ” to many countries. iv. the bank ’ s policy responses aggressive monetary easing finally, let me briefly touch on policy responses by the bank of japan given the economic and price developments discussed earlier. aware of the great importance of overcoming deflation and returning japan ’ s economy to a sustainable growth path with price stability, the bank has continued to implement a policy of strong monetary easing. the policy rate was lowered to 0. 1 percent, that is, effectively zero. moreover, to encourage a further decline in longer - term interest rates in the money market, the bank introduced in december 2009 a new funds - supplying operation, through which funds with a maturity of three months are provided at a fixed rate. as a result of these measures, market rates and bank lending rates have been declining. the bank will continue to maintain the extremely accommodative financial environment so as to help the economy achieve a self - sustaining recovery in