disclosure policy approved by the board of directors that addresses the bank ’ s approach for determining what disclosures it will make and the internal controls over the disclosure process. in addition, banks should implement a process for assessing the appropriateness of their disclosures, including validation and frequency. ix ) supervision of financial conglomerates : in view of increased focus on empowering supervisors to undertake consolidated supervision of bank groups and since the core principles for effective banking supervision issued by the basel committee on banking supervision have underscored consolidated supervision as an independent principle, the reserve bank had introduced, as an initial step, consolidated accounting and other quantitative methods to facilitate consolidated supervision. the components of consolidated supervision include, consolidated financial statements intended for public disclosure, consolidated prudential reports intended for supervisory assessment of risks and application of certain prudential regulations on group basis. in due course, consolidated supervision as introduced above would evolve to cover banks in mixed conglomerates, where the parent may be non - financial entities or parents may be financial entities coming under the jurisdiction of other regulators. the financial landscape is increasingly witnessing entry of some of the bigger banks into other financial segments like merchant banking, insurance etc., which has made them financial conglomerates. emergence of several new players with diversified presence across major segments and possibility of some of the non - banking institutions in the financial sector acquiring large enough proportions to have systemic impact make it imperative for supervision to be spread across various segments of the financial sector. in this direction, an inter - regulatory working group was constituted with members from rbi, sebi and irda. the framework proposed by the group will be complementary to the existing regulatory structure wherein the individual entities are regulated by the respective regulators and the identified financial conglomerates would be subjected to focussed regulatory oversight through a mechanism of inter - regulatory exchange of information. as a first step in this direction, an inter - agency working group on financial conglomerates ( fc ) comprising the above three supervisory bodies identified 23 fcs and a pilot process for obtaining information from these conglomerates has been initiated. the complexities involved in the supervision of financial conglomerates are a challenge not only to the reserve bank of india but also to the other regulatory agencies, which need to have a close and continued coordination on an on - going basis. x )'know your customer'( kyc ) guidelines – anti money laundering standards : banks were advised in 2002 to follow certain customer identification procedure for opening of accounts and monitoring transactions of a suspicious nature for the purpose of reporting

so what are the implications that stem from the fact that financial instability can impair the efficacy of monetary policy? i think there are at least three major implications : the central bank has a strong stake in preventing financial instability. when financial instability occurs, the central bank has an important role in taking steps to mitigate that financial instability. this includes ensuring that credible liquidity backstops are available and forcing banks to strengthen themselves, for instance by raising additional capital. the stance of monetary policy needs to be judged in light of how well the transmission channels of monetary policy are operating. when financial instability has disrupted the monetary policy transmission channels, following simple rules based on long - term historical relationships can lead to an inappropriately tight monetary policy. let me now consider each of these implications in turn. the first implication, that the central bank has a strong stake in preventing financial instability, has several elements. the central bank needs to be willing to respond to limit financial market bubbles from developing in the first place. this includes not just paying attention to asset price bubbles, but also to related excesses in leverage and in short - term funding markets. as i noted in a speech a few years ago, this is difficult to do in practice. 3 after all, bubbles are difficult to identify in real time and the central bank ’ s policy toolkit to deal with bubbles may be limited. however, this difficulty cannot be an excuse for inaction. using the bully pulpit, implementing macroprudential measures, or adjusting monetary policy can generate superior results compared to inaction. the central bank also has to ensure that the financial system is sufficiently robust and resilient so that if there are financial market shocks, the banking system can absorb any shocks and continue to perform its credit intermediation function. this has many elements including tough capital and liquidity requirements for banks and strong financial market infrastructures. it also includes taking action to eliminate sources of vulnerabilities whenever they may arise – for example, strengthening the triparty repo system, reducing the vulnerability of money market mutual funds to runs, or forcing derivatives contracts to be standardized and centrally cleared. these actions should be undertaken during “ peacetime ” rather than when a crisis is already underway. finally, the central bank needs to look over the horizon and identify market practices and processes that could make the financial system more vulnerable to shocks or that could see “ asset bubbles and the implications for central bank policy ”, economic club of new york, april 7, 2010. bis