systemic risk frameworks, would have to be identification of where the risks lie. 36. let me conclude by underlining some of the broad issues that would need to be addressed in the indian context going forward : a. how to strengthen capital requirements for market risk when most banks are on standardised approach? the basel iii regulatory initiatives under market risk are largely focussed on the internal model based approach. banks in india are currently on the standardised approach and in any case, most of the banks would continue to remain under the standardised approach. there is, therefore, a need to address the upgradation of the standardised approaches also. we are considering calibrating the capital requirement under standardised approaches with the available data for market risk. b. how to strike a balance in regard to fee - based revenue streams of banks? while non - interest income does offer diversification benefits, it may not necessarily be less risky than conventional loans. apart from the financial risks, there are significant reputational risks, particularly when banks engage in distribution of third party products. there cannot be rule - based prescriptions in this regard. but it would be imperative for the bank boards to closely understand the underlying risks, assess whether returns are commensurate with the risks and monitor such businesses of banks. for the market discipline to work, increased, granular disclosures of fee based income may have to be looked into. c. how to address conflicts of interest in banks ’ lending relationships and capital market activities? can the chinese walls be really effective in ensuring real separation of these activities within a bank? this issue is also relevant in respect of banks ’ being allowed to trade on exchanges for clients. d. how to strengthen the rating regime? the rating requirements in india are essentially driven by regulatory policies applicable to exposures of the regulated entities to various asset classes. it would therefore be imperative that the rating methodology employed for such activities is looked into by the regulator concerned. bis central bankers ’ speeches the rating agencies are supposed to adopt a through the cycle approach while assigning ratings. the regulators will need to modulate the risk weights applicable to the external ratings dynamically as per their assessment of systemic risk. towards strengthening the framework for cras, the system needs to shift away from issue - rating to issuer rating – the rating assigned to a particular instrument cannot be taken as reflective of the credit risk of the issuing entity. e. how to address excessive collateralisation of balance sheets? in view of the

christine lagarde : hearing at the committee on economic and monetary affairs of the european parliament introductionary speech by ms christine lagarde, president of the european central bank, at the econ committee of the european parliament ( by videoconference ), 19 november 2020. * * * madam chair, honourable members of the economic and monetary affairs committee, ladies and gentlemen, thank you very much for giving me the opportunity to speak to you today as part of our regular hearings. we continue to be confronted with serious circumstances, from both a health and an economic perspective. pandemics are highly infrequent and unpredictable events, and consequently the economic outlook is characterised by high uncertainty. the key challenge for policymakers will be to bridge the gap until vaccination is well advanced and the recovery can build its own momentum. in this situation, it is pivotal that public policies chart a clear way forward and inspire confidence in eu citizens. good public policies are what will allow us to persevere in these challenging times, and to do so, they need to be ambitious yet realistic. given the central role played by the european parliament in ensuring that eu policies work for eu citizens, i could hardly be in a better place to discuss the topics you have chosen for today ’ s hearing. first, i will comment on the evolving economic outlook and the impact of uncertainty on the economy. second, i will discuss the respective roles of the ecb ’ s monetary policy and of fiscal policy in the current environment. economic outlook, monetary policy and uncertainty while the latest news on the vaccine looks encouraging, the recent surge in coronavirus ( covid - 19 ) cases and the associated re - imposition of a number of containment measures are adding to the already heightened level of uncertainty and present a serious challenge to the euro area and the global economy. following a strong but partial and uneven rebound in real gdp growth in the third quarter, latest surveys and high - frequency indicators signal that euro area economic activity lost momentum going into the fourth quarter. the resurgence in covid - 19 infections is weighing on services sector activity in particular, which is especially vulnerable to the voluntary and mandatory social distancing measures introduced. the purchasing managers ’ index for the euro area shows that while manufacturing output continued to improve, services sector activity weakened further in october. this uneven impact is also evident across euro area countries, with those countries particularly dependent on tourism and travel affected the most. so far, government support measures, particularly short - time