system and in the real economy. a year ago, the uk housing market was clearly developing significant momentum. prices were growing much faster than incomes. borrowers were increasingly driven to borrow a greater amount relative to their annual income. the amount of such new mortgages at high loan to income ( lti ) ratios – borrowers borrowing over 4 times their annual income – had exceeded its pre - crisis peak. the risk the committee saw was that if the number of high lti mortgages continued to grow, there would be increasing numbers of highly indebted households very vulnerable to a change in economic circumstances. this would increase both macroeconomic volatility and systemic risk. the committee came to the view that this was a macroprudential risk that needed to be insured against. it recommended the introduction of limits on the proportion of new mortgages at high lti ratios. the momentum in the housing market cooled and the limits have not so far been reached. it is impossible to say how much this was a result of the committee ’ s action ; a number of other important factors were also in play. but it is an example of the fpc ’ s approach to adjusting policy to respond to changing risks. and it is also an example of the committee taking a broad view of financial stability that goes wider than direct risks to the banking system. a further example of how macroprudential risk can develop outside the banking system is the lending and investment that happens through financial markets rather than through banks. to take one example, the global asset management sector has grown by 60 % since 2003 and is now a similar size to the global commercial banking system. this will probably be one the july 2015 fsr identified the following major risks facing the uk financial system : the global environment notably greece and china ; market liquidity ; uk current account deficit ; uk housing market ; misconduct ; and cyber risk. bis central bankers ’ speeches of the new frontiers of macro ( and micro ) prudential regulation. the fpc is exploring whether there are significant risks from changes in these markets and in particular how asset managers manage liquidity to meet redemptions in times of stress. there is also work underway on this internationally. macroprudential policy is still a work in development. over the past few years much of the fpc ’ s work has been learning by doing. as we learn, we will have to set out clearly and publicly the development of our overall policy framework – how resilient we believe the

implementation of the new capital accord requires higher specialised skills in banks. in fact it requires a paradigm shift in risk management. the governance process should recognise this need and make sure that the supervised entity gears up to it. risk awareness has to spread bank - wide, the manner of doing business that measures risk adjusted returns needs to permeate the system. top management and the human resource development policy of banks thus need to get tuned bis central bankers ’ speeches to this requirement. we in the reserve bank also need to hone up our skills in regulating and supervising banks under the new system. we see this as an ongoing process and are continuously working towards skill improvement. governance 18. one can have the capital, the liquid assets and the infrastructure. but corporate governance will be the deciding factor in the ability of a bank to meet the challenges. bcbs has added a separate principle on corporate governance in its core principles for effective banking supervision which were revised in 2012. it is interesting to note that before 2012, there was no separate principle on corporate governance. i think global community is recognising the importance of corporate governance and is trying to fix the issues. thus while strong capital gives financial strength, it cannot assure good performance unless backed by good corporate governance. element of conservatism in minimum standards 19. several speakers mentioned about the super equivalence issue. let me add my bit to that discussion before i conclude. there is a general feeling that we have put in place a more stringent framework than what basel norms require. of course one would point out to the 9 percent crar, the 4. 5 leverage ratio, the slr running parallel with lcr, the higher ccf for otc derivatives and the like. we need to see this in a context. i have already dealt with the slr - lcr issue. on capital, all i can say is that in the ultimate analysis, on an aggregate basis, it does not make much difference. we must also appreciate that relatively much longer recovery process of defaulted loans, shorter history of ratings assigned by rating agencies in indian conditions putting certain constraint on benchmarking them against the international standards, relatively large population of unrated borrowers especially in mid and sme corporate sectors, market risk factors exhibiting more volatilities, etc. add challenges. besides, pillar 2 process and related add - on capital requirements is also yet to be fully stabilised. the higher prescription of 9 % minimum requirements in comparison to basel minimum of 8