they assume risk by choice and not by chance is value enhancing. however, hedging through market instruments results in a redistribution of risks. ideally, if this redistribution is done on the basis of a scientific appraisal of the optimal level and combination of risks for each entity it may result in an overall reduction of risks at the macro level. but the economy as a whole would still be exposed to risks. also, for proper functioning of hedging products it is essential that expectations about the risk variable should be heterogeneous. if price movements are unidirectional for a long time, protection sellers demand large premium from protection buyers. apart from the above, there are more subtle issues concerning risk management. it is well - known that markets flagrantly violate some of the postulates and assumptions of traditional mathematical finance. the volatility of financial prices and the tendency of this volatility to occur sometimes in episodes generally unrelated to any clearly exogenous news about fundamentals has been a subject of research for a long time in behavioural finance. the behavioral dimensions of risk management and hedging have attracted much attention in the recent years among academics and researchers. among other things, hedging decisions of any entity are influenced by two important factors : ( a ) stance of the competitors in this regard ; and ( b ) anomalies of human behaviour. the latter - mentioned aspect is significant : most often entities do not always have the intellectual or emotional impulse to take on risks and deal with them before they impinge on performance and it is too late. many do not feel the same way when they buy a luxury car and when they buy insurance for the same car. when we are educated to risk management possibilities, we become aware of the rich potential that finance has for improving human welfare, but we do not find it emotionally easy always to take advantage of this potential. experienced traders know it too well how difficult it is at times to quit a loss - making position. the field of risk management needs to design its methods to minimize the human weakness in risk management. finally, have adoption of risk management and use of risk mitigation products made the financial markets a safer place than before? it is a tough call to take. in a recent interview, professor robert merton, who along with myron scholes and fischer black invented the famous option pricing formula in the early 1970s, reportedly said, “ the real story is not what happened to ltcm in 1998 but

if a group of persons acquires sizeable equity or voting rights in a bank without following the acknowledgement procedure. there is no statutory power for directing disgorgement of shares and as such, if any such acquisition takes place, it may result only in contravention in provisions of br act. the main object of preventing the management of a bank from being captured by persons who are not fit and proper for holding such sizeable interest will not be achieved. rbi should, therefore, have the power to direct, by order, at any time that persons who are not fit and proper to hold such equity or voting power in contravention of these provisions, shall not have voting power. the 2011 bill proposes to confer such power on rbi. this will help prevent unscrupulous persons from exercising control over banks. deposit collection activity currently, collection of deposits from members / shareholders is not treated as acceptance of public deposits. this is a matter of serious concern, particularly, with respect to co - operative societies. deposits are accepted by enrolling members on tap and by collecting nominal bis central bankers ’ speeches amounts from them, exposing such depositors to serious risks. banking regulation act does not apply to such co - operative societies and they are outside the regulatory purview of the reserve bank. it is necessary to plug this important loophole. unless deposits are received from members who have voting rights, the deposits have to be treated as public deposits and the exemption from the provisions of banking regulation act should not be made applicable. every entity that accepts deposits from persons having no voting rights has to be treated as deposit accepting entity and should be regulated as such by rbi. rbi should have the discretion to determine the level and intensity of regulation and supervision depending upon the risk to the system from such entities. financial conglomerates in india, banks are entitled to carry on certain financial activities under the bank subsidiary model. some banks have formed subsidiaries to carry on securities and insurance business. the performance of the subsidiaries affects the balance sheet of the bank. on account of varied activities carried on by the entities in the group which fall within the regulatory jurisdiction of multiple regulators, the risk to the system as a whole posed by such financial conglomerates is difficult to assess. these raise systemic issues and rbi as the regulator of banks needs to be empowered to obtain information, with respect to each of the entities functioning under the umbrella of a bank. the 2011 bill proposes to confer such powers on rbi to get information with respect