anand sinha : perspectives on risk and governance address by mr anand sinha, deputy governor of the reserve bank of india, at the risk & governance summit, organized by the indian school of business, hyderabad and deloitte, mumbai, 23 august 2012. * * * inputs provided by ms. ranjana sahajwala, ms. anupam sonal and jayakumar yarasi are gratefully acknowledged. mr. p r ramesh, chairman, deloitte, dr. vikram kuriyan, director of the investment centre, indian school of business, ms. usha thorat and mr. v s das, my erstwhile colleagues from reserve bank and other delegates. it is a pleasure for me to interact with you all, today at this summit. the theme of the summit revolves around risk and governance, the two terms which are being looked at by policy makers with renewed interest and a fresh perspective in the aftermath of the global financial crisis. i intend to talk briefly on both risk and governance from a conceptual perspective before deliberating on the regulatory changes ( basel iii ) and conclude with a brief overview of the indian perspective. risk is almost god like in qualities. it is omnipresent. you find risk everywhere ranging from simple things such as walking ( you run the risk of tripping and falling ) or talking ( you run a risk of saying something inappropriate or getting misquoted ) to more serious things such as flying airplanes, launching satellites or conducting surgeries. unmanaged risk can prove disastrous and the recent global crisis is a continuing testimony of this fact. risk has a long history, perhaps as long as human history, and so does risk management. reflecting on risks and risk management as it would have prevailed in the early ages, i am reminded of a beautiful quote which goes this way : “ every day in africa a gazelle wakes up. it knows it must run faster than the fastest lion or it will be killed. every morning a lion wakes up. it knows that it must outrun the slowest gazelle or it will starve to death. it does not matter whether you are a lion or a gazelle. when the sun comes up, you better be running. ” understanding the risks and learning to manage them has been the mantra for survival in any age or in any realm of life. in fact, managing risks, i would say, is one of the critical attributes of human beings which differentiated them from the others and

the second pillar, the stress test, began in may and will evaluate the ability to maintain adequate solvency levels under stress, using the methodology agreed by the ecb and the european banking authority. this process will conclude in september and the publication of the results of the whole exercise is expected in late october. after this disclosure, those banks facing a capital shortfall will have to submit their recapitalisation plans to the ecb. i would like to say that, as we all know, the spanish financial system has undergone intense restructuring and recapitalisation, as well as a significant consolidation process. i am confident that spanish banks are prepared for this rigorous exercise. setting up the single supervisory mechanism and making it operational is not going to be a simple task. both from the procedural and organisational standpoints, it will be a complex process, requiring great effort, and will be a major responsibility for those who take on the leadership of this new european union - wide institution. bis central bankers ’ speeches ms sabine lautenschlager ’ s responsibilities as member of the executive board of the european central bank and vice - chair of the supervisory board of the ssm place her in a unique position. i have no doubt that her intervention will be extremely interesting and informative to us all. bis central bankers ’ speeches