shyamala gopinath : changing dynamics of legal risks in the financial sector inaugural address by ms shyamala gopinath, deputy governor of the reserve bank of india, at the symposium on “ changing dynamics of legal risks in the financial sector ”, kochi, 30 october 2009. * * * it gives me great pleasure to be amidst you all today to inaugurate this symposium. at the outset, i may say that this symposium on “ changing dynamics of legal risks in the financial sector ” could not have been organized at a more appropriate time than now. the recent global financial crisis has brought to light various risks. it has to a great extent blurred the distinction between operational risks and legal risks. as they say, each crisis opens up opportunities for learning and innovation ; it is just the right time for the legal fraternity to put on their thinking cap and investigate which of the many risks that culminated in the crisis may be identified as legal risks and what legal steps could have been taken that would have mitigated its effects. contextually in the wake of increased financial integration and globalization, it is essential that in - house legal officers also have an understanding of legal risks from a cross border point of view. i have no doubt that a symposium like this in which heads of legal departments of various regulators, banks and financial institutions are participating where they will have an opportunity to interact with distinguished speakers having rich experience in the field, drawn from within the country and abroad, will provide a proper direction to identify and deal with legal risks. as a central banker with three decades of experience i have had occasions to deal with diverse operational problems and difficult issues. i have no hesitation in saying that inputs received from the legal department of rbi have been very useful. at times one may feel that the legal opinion is a bit too rigid and conservative and fails to recognize the dynamics of the sector, but in the end we all need to appreciate that legal risks have to be accorded prime consideration and addressed. what is legal risk? there appears to be no concrete definition for the expression “ legal risk ” nor do i venture to make an attempt at defining it considering the complexities and variations in the risks involved. the basel ii accord covers “ legal ” risk under “ operational ” risk. legal risk may vary from institution to institution depending on the manner in which it conducts its business and the documentation it follows. the legal risks primarily arise either due to lack of clarity of the documentation of the product or the act of

have fallen further. low interest rates abroad influence the krone and thereby the prospects for inflation, contributing to low interest rates also in norway. in december last year, norges bank cut the key policy rate by 0. 25 percentage point to 1. 25 percent. in our assessment, norges bank gave weight to the weakening of the growth outlook for the norwegian economy and attached importance to countering the risk of a pronounced downturn due to lower oil prices. last week, norges bank presented its latest monetary policy report with updated projections for developments in the norwegian economy and a new assessment of the orientation of monetary policy. developments in the norwegian economy this winter have been broadly in line with expectations. inflation remains close to 2. 5 percent and unemployment has remained stable. so far, the effects of the fall in oil prices on the real economy have been relatively small. however, the outlook for the norwegian economy has weakened somewhat. oil prices have continued to fall and activity in the petroleum industry appears to be declining more than previously assumed. wage growth in 2014 was lower than projected and there are prospects that wage growth will also be lower ahead than projected earlier. this will lead to lower inflation further ahead. at the same time, house prices continue to rise rapidly. this may increase household vulnerability and may trigger or amplify an economic downturn further ahead. the executive board decided to keep the key policy rate unchanged at 1. 25 percent. if developments in the economy ahead prove to be broadly as projected, there are prospects that the key policy rate will be lowered. bis central bankers ’ speeches the analysis in the report suggests a key policy rate of approximately 1 percent in the coming years, followed by a gradual increase. the analysis suggests that inflation will increase somewhat in the coming quarters before edging down and lie slightly above 2 percent later in the projection period. capacity utilisation in the mainland economy is projected to decline further, before returning to a more normal level. let me summarise. after the global financial crisis, the norwegian economy quickly rebounded, supported by robust public finances and strong growth in the petroleum sector. since last summer, oil prices have fallen. activity in the petroleum sector has probably passed the peak. so far, the impact on the real economy has been modest. at the same time, the norwegian economy is facing new challenges. vulnerabilities established during the golden years must be addressed. from being in a unique economic position, norway is now headed for a period of restructuring