started as a financial crisis in mid 2007 has evolved into a sovereign debt crisis in 2010. today, there is a consensus among policy makers that in order to put the global growth on a strong, sustainable and balanced path, high debt economies should implement fiscal consolidation, which is both financially ambitious and politically feasible, while countries with low debt should implement policies that stimulate domestic consumption to offset the fall in global demand. one fundamental reason of high savings rate in developing countries is the weakness of safety nets ( in employment, retirement and healthcare ) and the lack of well - established financial institutions that serve the needs of households facing budget constraints. if safety nets and credit markets in developing countries were established, households would be able to raise their consumption. there are also calls for establishing new global mechanisms to address the concerns of emerging market economies regarding fx liquidity, which has led to accumulation of high amount of fx reserves through capital controls and intervention on exchange rates to keep local currency undervalued. of course, relaxing capital controls and gradual adoption of more flexible exchange rate systems should also be part of this package to achieve successful reorientation of global demand from advanced economies to emerging market economies. last but not least, all countries should undertake necessary actions to repair, restructure and reform their financial system. necessary structural reforms in product and labor market should also be a top priority to increase potential growth rates and reduce permanent unemployment. dear guests, now let me turn to responsibilities of central banks and elaborate on their evolution over time. until recently when you asked the primary mandate of central banks, the typical response would be price stability. however, the history tells us that central banks were founded for quite different reasons in many countries. for instance the bank of england was founded in the 17th century to cover the financing need of the british government during its war against france. likewise, bank de france was created in the 19th century during the napoleon wars against the great britain. these institutions had the privilege of issuing banknotes in exchange for providing funds for treasuries. in other countries providing stability in financial markets was the paramount concern. for example, the need for a lender of last resort following panics and crashes during the early 20th century led to creation of the federal reserve system in the us. the central bank of turkey, on the other hand, was founded both as a symbol of national independence and to stabilize seasonal fluctuations in financial markets due to nature of agriculture - based economy. the concept of price stability was not brought to

from capital and second loss facility is risk weighted according to the rating. credit enhancement cannot be withdrawn / reduced by the provider throughout the life of the transaction except to cover the losses suffered by spv. • prudential norms for investment in the securities issued by spvs. • accounting treatment for securitisation transactions – an important feature was that profit / premium arising on account of sale should be amortised over the life of the securities issued or to be issued by the spv. • due diligence framework for securitisation transactions and disclosures to be made by the spvs / trustee and originators. bis central bankers ’ speeches 20. based on the lessons learnt from the global financial crisis on securitisation and with a view to develop an orderly and healthy securitisation market, the rbi guidelines of february 2006 were reviewed and enhancements to the guidelines issued in may 2012. while the securitisation framework in india had been reasonably prudent, certain imprudent practices had reportedly developed like origination of loans with the sole intention of immediate securitisation and securitisation of tranches of project loans even before the total disbursement was complete, thereby passing on the project implementation risk to investors. in view of the same and in accordance with the on - going international work on securitisation, another important objective of the enhancements was to ensure greater alignment of the interests of the originators and investors and retention of “ skin in the game ” by the originators. these guidelines also covered prudential treatment for transfer of assets through direct assignment of cash flows and underlying securities, if any. the important features of the may 2012 guidelines are as follows : • prescription of the minimum holding period ( mhp ) : minimum holding period varies from 3 months to 12 months depending upon the tenor of the loan and repayment frequency and is defined in terms of number of installments paid. the criteria governing determination of mhp reflect the need to ensure that i ) the project implementation risk is not passed on to the investors and ii ) a minimum recovery performance is demonstrated prior to securitisation to ensure better underwriting standards. • prescription of minimum retention requirement ( mrr ) – 5 % for loans up to 24 months and 10 % for loans of tenor beyond 24 months. the mrr is primarily designed to ensure that the originating banks have a continuing stake in the performance of securitised assets so as to ensure