asset - backed commercial paper ( abcp ) conduit that, in turn, funds itself by issuing commercial paper that is purchased by money market funds. alternatively, the lower - risk tranches of loan securitizations might be purchased by securities dealers that fund the positions through collateralized borrowing using repurchase ( repo ) agreements, with money market funds and institutional investors serving as lenders. although the shadow banking system taken as a whole performs traditional banking functions, including credit intermediation and maturity transformation, unlike banks, it cannot rely on the protections afforded by deposit insurance and access to the federal reserve ’ s financial stability oversight council ( 2012 ), “ authority to require supervision and regulation of certain nonbank financial companies, ” final rule and interpretive guidance ( 12 c. f. r. pt. 1310 ; rin 4030 – aa00 ), a p r i l 3, a v a i l a b l e o n t h e f i n a n c i a l s t a b i l i t y o v e r s i g h t c o u n c i l we b s i t e a t w w w. t r e a s u r y. g o v / i n i t i a t i v e s / f s o c / p a g e s / f i n a l - r u l e s. a s p x ; forthcoming in the federal register, vol. 77. bis central bankers ’ speeches discount window to help ensure its stability. shadow banking depends instead upon an alternative set of contractual and regulatory protections – for example, the posting of collateral in short - term borrowing transactions. it also relies on certain regulatory restrictions on key entities, such as the significant portfolio restrictions on money market funds required by rule 2a – 7 of the securities and exchange commission ( sec ), which are designed to ensure adequate liquidity and avoid credit losses. during the financial crisis, however, these types of measures failed to stave off a classic and self - reinforcing panic that took hold in parts of the shadow banking system and ultimately spread across the financial system more broadly. an important feature of shadow banking is the historical and continuing involvement of commercial and clearing banks – that is, more “ traditional ” banking institutions. for example, commercial banks sponsored securitizations and abcp conduits, arrangements which, until recently, permitted those banks to increase

financial service providers is that they display high levels of transparency in product design, pricing and financial disclosures. in addition, a credible, cost effective and expedient grievance redressal mechanism has to be made available to all customers. banks must make use of technology to deliver banking products and services in a cost - effective manner. customer education is also critical so that the user can have the ability to choose appropriate and need based products and services. unless the banking system becomes customer centric in all its dimensions, it would fail to attain sufficient momentum to gain access to the next orbit. know your customer, his business and business risks 20. across the world, greater emphasis is being laid by the financial service providers on knowing their customers. it has important regulatory and business dimensions. from a regulatory perspective, banks and other financial service providers are expected to understand the business activities of their customers so that they do not, inadvertently, end up being conduits for illegal activities such as terrorism, mlm, frauds, hawala transactions, etc. from a business perspective, know your customer ( kyc ), know your customers ’ business ( kycb ) and know your customers ’ business risks ( kycbr ) are important for understanding the nature of the customer ’ s business, which would help in offering suitable products, managing credit exposure and generating early warning signals for potential delinquency risks. 21. it is important that the emphasis on kyc compliance is effectively conveyed across the organization by the top management, not just for meeting regulatory requirements, but as an opportunity to understand the customer better and maximize the gains from the customer relationship. human resource management 22. we must realize that the traditional factors of production named in economics textbooks are no longer relevant in the banking industry. land, labour, physical capital and enterprise have given way to skills, technology and human capital as the prime factors of production in the banking sector. employees are no longer “ labour ”, they are “ people ” who ought to be nurtured and cared for. when i say “ people ”, i mean the bank management and all employees – officers, clerical staff and the sub staff. an organization ’ s “ people ” are the force that can, potentially, make the difference between success and failure. when the marketplace has number of players with broadly similar product offerings, the ability and motivation levels of employees could be the clinching factor when it comes to gaining an edge over rivals. the challenge before management is to