subir gokarn : financial development and deposit insurance – some linkages remarks by dr subir gokarn, deputy governor of the reserve bank of india and chairperson, deposit insurance and credit guarantee corporation ( dicgc ), at the 8th asian regional committee and international conference of international associations, goa, 18 january 2010. * * * introduction governor, reserve bank of india, dr. d. subbarao ; deputy governor, reserve bank of india, ms. usha thorat ; president, iadi and vice - chairman, fdic, mr. martin gruenberg ; chairman, arc and deputy governor, dicj, mr. mutsuo hatano ; ceo of the deposit insurance and credit guarantee corporation, mr. h. n. prasad ; distinguished participants ; let me add my own words of welcome to all the participants in this very important event. in his opening address, governor subbarao provided a historical perspective on the development of deposit insurance in india, highlighted its importance in sustaining confidence in the banking system as we dealt with the global financial crisis and laid out the challenges that it will have to deal with in the future. i would obviously not like to cover the same ground. also, i must admit to being a complete novice as far as deposit insurance is concerned, having only taken on the role of chairperson of deposit insurance and credit guarantee corporation ( dicgc ) in late november 2009, when i joined the reserve bank of india as deputy governor. consequently, i thought it would be more appropriate and useful for me to talk about a broad vision for financial sector development, which will then provide a framework within which to view the evolving role of deposit insurance. the recent crisis is clearly a dominant factor in any current discussion on financial sector development. while this is entirely understandable and legitimate, we must resist the temptation to view the future entirely through the lens of the crisis. crises will come and go, but the role that the financial sector as a whole plays in economic development and welfare will be fulfilled only if we allow it to find a healthy balance between multiple and sometimes potentially conflicting objectives. taken together, these objectives provide an enduring way to view financial sector development, which combines both traditional functions and incorporates new goals that are driven by both domestic and global aspirations and compulsions. a framework for financial development i will now lay out a framework for financial sector development, which encompasses five critical objectives. these five objectives are : efficiency, stability, transparency, inclusion and sustainability

##ness of the economy has to be accelerated. it is essential. is it fair that some countries like portugal or ireland, with their own fiscal problems, could be called to participate in the solution for greece financing its debt? all the countries, without any exception, have to behave properly to have good management of their fiscal policy, good monitoring of their relative competitiveness, of their unit labour costs, of their structural reforms and overall competitive indicators. they all have to collectively exercise strong surveillance on the individual governments of the euro area, impose strong conditionality where needed and fully recognize that they are sharing a destiny in common. should the euro area and european union create an institutional framework, like a european monetary fund, to solve this kind of problem? firstly, the sgp is there precisely to organize peer surveillance of the sixteen members. the close monitoring of the policies pursued by each of the sixteen and the good functioning of this peer surveillance is absolutely essential. if we have a reinforced surveillance on the members of the euro area themselves, we will not have problems in the future. secondly, i think the task force presided over by mr van rompuy, according to a decision taken by the heads of state and government, will concentrate on how we could improve surveillance and – when necessary – the conditionality that the euro area will impose on each of its members, in line with the treaty. you think that this solution to greece is enough to calm down the financial markets? i already said what i have to say on that. was this financial crisis your most difficult task in the ecb? we have no “ most difficult task ”. we have to be permanently alert. as you know, the ecb has been very alert. before the crisis, we warned against the possibility of a market correction of great magnitude. we said that, i said that myself, in 2006 and at the beginning of 2007. we were the first central bank in the world, in august 2007, to assess that a period of financial turbulences was starting and to take appropriate decisions. that was, of course, a very difficult decision to take based upon this new turbulent market environment we had to cope with at that time. we had a lot of difficult decisions to take, like all other major central banks of the world, after the intensification of the crisis, which took place mid - september 2008, when we decided to embark on a series of non - conventional measures. we have to be alert, all of us, permanently