such a mixed model for the structure of the banking sector or financial sector in general would lend stability through diversity. differing priorities and practices enabled public sector institutions to retain a public sector character and not merely to replicate the functioning of private sector counterparts. the problem of information asymmetry may be moderated if public sector banks co - exist, assuming that they have fewer incentives to withhold information from regulators, and are often subject to legislation relating to the right to information. it is not necessary that a bank or a non bank financial entity should be owned entirely by government or only by private shareholders. a variety of combinations of public and private ownership and control can be considered. in revisiting the issue of regulation in conjunction with competition and ownership, it is necessary to recognise the lessons from public sector banking in the 1970s and 1980s, particularly in developing and emerging market economies. the problems in the past with public sector banking were on due to financial repression attributable to macroeconomic policies, the lack of appropriate global standards of regulation, the existence of monopoly status, and technological obsolescence, in addition to standards of governance in public systems in general, and public ownership in particular. in the context of the global financial crisis, the practices of some entities that were virtually public sector, such as freddie mac and fannie mae, do not provide reassurance that public sector character would in itself be benign. experiences with some banks in the public sector in europe may also be instructive. the temptation to politicise public sector banking may persist, but the need for professionalisation in the public sector should not be underestimated. the new realities consequent upon the crisis indicate the potential for a redefined role for public sector financial institutions, provided that the experience prior to deregulation and privatisation, as well as select cases related to the global financial crisis, are also kept in mind. the use of fiscal and related instruments to supplement regulatory effectiveness could be considered in earnest. information generated for purposes of taxation is likely to be of great practical use for regulators in monitoring financial sector activities. levying financial transaction taxes could be considered, with rates that discriminate against excessive speculation. the cross - border activities of financial intermediation could be brought within the tax net, and thus the regulatory ambit, by adopting the issuance principle ( financial institutions located outside the country would be obliged to pay the tax if they traded securities originally issued within the country ) and the residence principle (

market, or after receiving complaints from an affected party? or should it rely on monitoring of every innovation and assessing suo motu whether there are harmful effects? often, many innovations look attractive in the short run because risks are back - loaded on some and rewards are front loaded on others. in finance, pressure on regulators to regulate is also back loaded, and is often too late. different industries have different approaches and tools to regulate, and the point at which regulators ’ jurisdiction is activated varies across industries. for example, in pharmaceuticals, the regulator has to approve ex - ante, while in regard to restrictive trade practices it may be ex - post. in many industries, regulations address issues relating to innovations. for example, in the pharmaceutical industry, considerable experimentation is demanded and ex - ante approvals are required for marketing. in engineering systems, the consistency of innovations with network in which they are to be applied is often required to be certified, by either an industry body or the regulator. in many others, innovations are left to the market test, unless they happen to have ex - post, negative effects, in which case public policy may consider intervening. in brief, there are several industries which have been subject to different systems of regulation, and they have stood the test of time. the financial sector should be able to draw lessons from such experiences, recognising the unique characteristics of the financial sector. such lessons will also help in differentiating between technological, process and product innovations. markets are, indeed, a source of many innovations, but there are examples in many industries where the public sector has been active in promoting innovations. there is merit in central banks encouraging innovations in the financial sector that have the potential to serve the public. i agree with chairman ben bernanke when he said, referring to striking the right balance between consumer protection and responsible innovation, “ our goal should be a financial system in which innovation leads to higher levels of economic welfare for people and communities at all income levels ” ( bernanke, 2009 ). my submission is that central banks in particular, and regulators in general, could be more proactive in promoting and incentivising appropriate innovations in the financial sector, and drawing on the experience of other industries may be of considerable value in evolving policies towards financial innovations. effectiveness of regulation there is considerable agreement that better and more effective regulation is of vital importance to the financial sector, and that more regulation is not necessarily better. at the same time, the experience