capital ratios, the balance sheet of the banks expand on the back of growing credit to fund higher growth, and these banks in emes may have to mobilize larger capital with cost implications. higher capital requirements arising out of resecuritisation and complex derivatives may have muted implications for emes because of the fact that such exposures are either limited or not permitted. supervisors need to be vigilant that tighter regulation does not drive risk from the banking system into the shadows and to less transparent and lightly supervised parts of the financial system. liquidity standards 16. emes have not experienced the levels of liquidity stress that advanced economies had suffered. therefore, implementing the liquidity standards requires emes to develop the capability to collect and collate the relevant data accurately and granularly, with a view to analysing and forecasting the liquidity stress scenarios with reasonable accuracy and consistent with their own situation. they have however the advantage of drawing upon the experience of the developed economies. leverage ratio 17. the current proposal under consideration of the basel committee on banking supervision ( bcbs ) is to include all on and off balance sheet exposures. here, an area of concern for emes could be the treatment of off - balance sheet ( obs ) exposure. most of the obs exposures in emes have their footprints in the real economy, basically for hedging purposes, as proprietary trading by banks is limited and / or complex financial products are not introduced in these jurisdictions. further, these contingent liabilities do not generally materialise. on the contrary, in advanced economies, obs exposures have their footprints predominately in the financial sector, including for speculative purposes. given this critical differentiation, credit conversion factor ( ccf ) is crucial. higher ccfs could have adverse implications for flow of credit to real sector and capital formation in the emes. material for this section is broadly drawn from post - crisis reforms to banking regulation and supervision – think global, act local, the inaugural address by dr. d. subbarao, governor, reserve bank of india at the ficci - iba conference on “ global banking : paradigm shift ” on september 7, 2010 and emerging market economies leading global growth, remarks by dr. duvvuri subbarao, governor, reserve bank of india at a panel discussion on “ role of emerging economies going forward and key policy challenges ” at the imf, washington dc on october 9, 2010. bis central bankers

grappled with many of the same issues. but as we lived through it, there was much uncertainty about the evolving structure of the economy and about the influence of monetary policy. despite those uncertainties, the trauma of the 1970s was still so vivid throughout the 1980s that preventing a return to accelerating prices was the unvarying focus of our efforts during those years. in recognition of the lag in monetary policy ’ s impact on economic activity, a preemptive response to the potential for building inflationary pressures was made an important feature of policy. as a consequence, this approach elevated forecasting to an even more prominent place in policy deliberations. * * * after an almost uninterrupted stint of easing from the summer of 1984 through the spring of 1987, the fed again began to lean against increasing inflationary pressures, which were in part the indirect result of rapidly rising stock prices. we had recognized the risk of an adverse reaction in a stock market that had recently experienced a steep run - up - indeed, we actively engaged in contingency planning against that possibility. i, nonetheless, wish to thank my colleagues david stockton, david wilcox, don kohn, ben bernanke and john taylor for their many suggestions and reminiscences. in the event, the crash in october 1987 was far more traumatic than any of the possible scenarios we had identified. previous planning was only marginally useful in that episode. we operated essentially in a crisis mode, responding with an immediate and massive injection of liquidity to help stabilize highly volatile financial markets. however, most of our stabilization efforts were directed at keeping the payments system functioning and markets open. the concern over the possible fallout on economic activity from so sharp a stock price decline kept us easing into early 1988. but the economy weathered that shock reasonably well, and our easing extended perhaps longer than hindsight has indicated was necessary. that period was followed by a preemptive tightening that brought the federal funds rate close to 10 percent by early 1989. in the summer of that year, we sensed enough softening of activity to warrant beginning a series of rate reductions. however, the weakening of demand already under way, some pullback of credit by lenders, and the spike in oil prices associated with iraq ’ s invasion of kuwait were sufficient to produce a marked contraction of activity in the fall of 1990. but perhaps aided by our preemptive action, the recession was, to then, the mildest in postwar history. however