usha thorat : global agenda for regulatory and supervisory reforms – the stock taking and way forward opening remarks by ms usha thorat, deputy governor of the reserve bank of india, at the panel session on “ strengthening financial regulation and supervision ” of the ficci – iba conference on “ global banking : paradigm shift ”, mumbai, 8 september 2009. assistance of shri tulasi gopinath in preparing the speech is acknowledged. * * * i thank the organisers of the ficci – iba conference on global banking : paradigm shift for having invited me to chair the panel session this afternoon on strengthening financial regulation and supervision. macro - economic scenario the massive derailment of the financial sector in the advanced economies has had a knock on effect on the world economy. the world output is expected to contract by 1. 4 per cent in 2009, gdp in the advanced economies is projected to decline by 3. 8 per cent in 2009 before growing by a meagre 0. 6 per cent in 2010. the gdp of us and the uk is forecast to witness a fall of 2. 6 per cent and 4. 2 per cent in 2009 before an anaemic recovery to 0. 8 per cent and 0. 2 in 2010, respectively. euro area, on the other hand, is expected to shrink by 4. 8 per cent and 0. 3 per cent both in 2009 and 2010, respectively ( weo, 2009a ). unemployment in advanced countries is projected to scale higher from 5. 8 per cent in 2008 to 8. 1 per cent in 2009 and further to 9. 2 per cent in 2010 ( weo, 2009 ). the unemployment in the us is expected to almost double from 5. 8 per cent in 2008 to 10. 1 per cent in 2010. spain is forecast to suffer the highest unemployment within the euro area with 19. 3 per cent unemployment in 2010. the fiscal stimuli that have been put together in these countries in response led to worsening fiscal positions. in the oecd countries, the fiscal position is set to deteriorate from - 3. 2 per cent in 2008 to - 7. 7 per cent in 2009 and further to - 8. 8 per cent in 2010. the fiscal deficit is poised to more than double in the us, japan and the euro area in 2009 and further deteriorate in 2010. by the end of 2010, the ratio of gross government debt to gdp is estimated to reach 98 per cent for the us

and i do not want to go over these. what i would like to do, is to discuss the actions taken so far by governments, central bankers and regulators over the last one year. just last week, we have had two very important statements – one issued by the g20 finance ministers and governors and the other by the basel oversight body – the group of governors and heads of supervision. these statements reflect the consensus arrived at, so far, for strengthening financial regulation and supervision and outline what remains to be done. it is therefore very timely that we are having this seminar today to debate and discuss the implications of the changing international framework for emerging countries like india. let me start with the basel committee. in july this year, the committee issued a series of standards for higher capital for the trading book as it was recognised that the basel ii framework seriously underestimated the capital needs for the trading book. therefore, the basel committee has introduced new trading book capital rules that substantially raise trading book capital requirements. it prescribes higher capital requirements for resecuritisations and exposures to off - balance sheet vehicles. it has evolved principles for stress testing and valuation of complex products, as also for supervision and management of funding liquidity risk. it has incorporated the fsb compensation standards into the pillar 2 supervisory review process and has enhanced pillar 3 disclosures focusing on trading activities, securitisations and exposures to off - balance sheet vehicles. yesterday, i. e. on 7th sep 2009, following a meeting of the governors and heads of supervision, the oversight body of the basel committee on banking supervision representing 27 important jurisdictions, issued a press release on a comprehensive set of measures to strengthen regulation, supervision and risk management of the banking sector. these measures include : • raising the quality, consistency and transparency of the tier 1 capital base. the predominant form of tier 1 capital must be common shares and retained earnings. deductions and prudential filters will be harmonised internationally and generally applied at the level of common equity. • introduction of a leverage ratio which will be initially a supplementary measure to the basel ii risk - based framework with a view to migrating to a pillar 1 treatment based on appropriate review and calibration. to ensure comparability, the details of the leverage ratio will be harmonised internationally, fully adjusting for differences in accounting. • introduction of a minimum global standard for funding liquidity that will include a stressed liquidity coverage ratio requirement, underpinned by a longer -