sector may not be fully desirable. thomas philippon formally analyses this trade - off in his ( 2010 ) aej macro paper and discusses the implementation of corrective taxes and subsidies to guarantee the optimal allocation of resources between the financial and the productive sectors. 10 thomas philippon ’ s paper published in the quarterly journal of economics in 2012 11 analyses the allocation and compensation of human capital in the financial industry. together with his co - author ariell reshef, he documents the pattern in wages and skill intensity in the financial industry in the us between 1909 and 2006. the authors show that this pattern is non - monotonic. high compensations in banking and the ability of the financial industry to attract the most skilled workers are not permanent features of this industry. as the paper shows, changes in financial regulation are important determinants of these patterns. tighter regulation tends to lead to an outflow of resources from the financial sector. this line of research points to the wide range of subjects that interest thomas philippon already shown in his 2007 book “ un capitalisme d´heritiers : la crise francaise du travail ” 12 see speech by vitor constancio : banking union : meaning and implications for the future of banking at the banking union conference, navarra university, madrid 24 april 2014. see the opening speech entitled “ the implications of bail - in rules for bank activity and stability ” by benoit cœure at the conference “ financing the recovery after the crisis – the roles of bank profitability, stability and regulation ”, held at bocconi university on 30 september 2013. acharya, v., l. h. pedersen, t. philippon and m. richardson, ( 2010 ) “ measuring systemic risk, ” working paper. see, for example, the vox article entitled “ finance and growth : too much of a good thing? ” by thorsten beck, 27 october 2013. philippon, t., ( 2010 ), “ financiers versus engineers : should the financial sector be taxed or subsidized? ”, american economic journal : macroeconomics, 2 ( 3 ), 158 – 182. philippon, t. and a. reshef, ( 2012 ) “ wages and human capital in the u. s. finance industry : 1909 – 2006 ”, quarterly journal of economics, 127 ( 4 ), 1551 – 1609. philippon, t., ( 2007 ) “ un capitalisme d´

in the belief that they will get their funds back as and when they want. this belief comes from the fact that it is a business that is licenced by a public authority that regulates and supervises the banks on certain established principles. the crisis highlighted inter alia the importance of regulating and supervising the liquidity risk management of banks thereby ensuring their safety and soundness under stressed conditions. any event that undermines this faith cuts at the very root of the relationship between a bank and its customer. depositors will withdraw money, borrowers will migrate to another bank which can meet their needs. thus poor liquidity risk management deals a body blow to a bank ’ s ability to undertake its basic business. in very simple terms, therefore, everyone transacts with a bank in the belief that it has the funds and funding sources to meet its obligations whether to a depositor or borrower. it may not be just meeting its liabilities but the credit needs of its borrowers as well. the depositor in a complex world could mean any person to whom the bank owes funds and the word borrower means any person to whom the bank has provided or committed to provide funds. liquidity risk arises when a bank is not able to meet its obligations without incurring a disproportionate cost and finally being unable to meet the obligations at all. the 2007 crisis revealed that well capitalised banks experienced difficulties which could be traced to lack of prudent liquidity management. it underscored the importance of liquidity to the proper functioning of financial markets and the banking sector. till then one believed that bis central bankers ’ speeches the wholesale market had unlimited capacity to fund the liquidity requirements of banks and thus led to funding risky or illiquid asset portfolios with potentially volatile short term liabilities. it showed through some cases how single institutions could cause deleterious systemic implications. basel committee responded by publishing principles for sound liquidity risk management and supervision, followed by two minimum standards for funding liquidity, viz., liquidity coverage ratio and net stable funding ratio. in 2012, the indian framework incorporated principles for sound liquidity risk management. these seventeen principles were issued so that the liquidity risk framework of our banks could incorporate the global best practices. in june 2014, rbi had issued the guidelines on basel iii framework on liquidity standards – lcr, liquidity risk monitoring tools and lcr disclosure standards, and in may 2015, draft guidelines on net stable funding ratio were issued