currently, the brics are negotiating both a contingent reserve arrangement ( cra ) and the establishment of a new development bank ( ndb ). the cra is a type of financial safety net in the form of a self - managed facility through which brics countries can provide mutual support to each other when dealing with short - term liquidity and balance of payment pressures, and will likely take the form of a swap agreement, with an initial size of us $ 100 billion. the aim of the ndb is to mobilise resources for infrastructure and sustainable development projects in brics. chief negotiators have been appointed by each country and have commenced negotiations around issues such as membership ; governance ; capital size ; structure and articles of agreement, amongst others. 2. the importance of capital markets literature around the relationship between capital market development and economic growth goes as far back as 1873, when walter bagehot ( followed by joseph schumpeter and john hicks in the 1900s ) pointed out that industrialisation in most of the developing countries was due to the availability of the financial system to mobilise bis central bankers ’ speeches productive financial capital. today this remains a widely debated topic, with some division among economists regarding the importance of finance for growth and the causal relationship between the two. some would argue that financial development is not important and that it is actually economic development which creates the demand for financial instruments. others would concur with bagehot and argue that a well - developed financial system improves the efficiency of financing decisions, supports a better allocation of resources and therefore promotes economic growth and development. well - developed capital markets not only support growth, but the ability to diversify sources of finance helps to foster more stable growth by ensuring that shocks to the supply of bank credit do not impede growth. i would certainly lean towards the camp that argues that the financial system is without a doubt essential for economic growth. to quote the words of former british prime minister gladstone “ … finance is, as it were, the stomach of the country, from which all the other organs take their tone. ” various studies conducted over the years, found that equity market liberalisation led, in some instances, to over one percentage point of additional economic growth in those countries that implemented them in the late 20th century. in addition, as long as domestic government debt remains at moderate levels, the growth of bond markets contributes positively to economic growth and provides a basis for the development of other capital markets. such studies point out

of 2003, when the federal funds rate was at its lowest at 1 per cent, a new trend of floating - rate mortgages, which in the usa are known as adjustable rate mortgages ( arms ), emerged with, of course, its “ teaser - rate variant ” where, as we know, interest rates were set at rates lower than the ruling market rates during the initial period and variable rates, higher than the corresponding market rates, in the subsequent period. it is, of course, history now that when the federal reserve started raising interest rates from 2004 through 2006 – 07, there were widespread defaults precisely in the floating - rate / teaser loan / arm segment with, of course, collateral damage in the conforming, fixed - rate mortgage segment as well. 5. if, by now, i have been persuasive enough to disarm and convert lenders to the above proposition, i must still answer the legitimate question that lenders would logically have as to how then to make a long - term fixed - rate loan, whether for housing, or for infrastructure, without creating any serious asset - liability mismatch in their balance sheets. to this question, i have a very simple market - based solution which is that banks / lenders can easily have recourse to a very liquid and vibrant irs ( interest rate swaps ) market, where, as on 22 january 2010, outstanding notional principal amounts aggregated rs. 38 trillion ( almost 75 % of the total banking assets in india as also of the nation ’ s gdp ), and easily transform their short - term liability into a long - term fixed - rate one and thus create a synthetic long - term fixed - rate mortgage financing by doing the following : ( a ) receive fixed - rate for one year and pay floating overnight rate in the irs market. ( assuming banks ’ average liability is about one year ). ( b ) receive floating overnight rate and pay 10 - year in irs market. this effectively synthetically transforms a one year floating - rate liability of bank into a synthetic 10 - year fixed - rate liability. by loading margin over this rate, banks can make a 10 - year fixed - rate loan to a mortgage borrower. and, significantly, considering that irs trades about 50 to 80 basis points below sovereign yield, it is win - win for both banks and long - term fixed rate mortgage borrower who, even after bankers ’ spreads / margins, will be able to borrow at a reasonable