Quotes of Reserve Bank of India’s Newly Appointed Deputy Governor Viral Acharya

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Pic: International Atlantic Economic Society

The Dodd-Frank Act is clearly the largest regulatory overhaul of the financial sector in the United States since the Great Depression.

First and foremost, you need to ensure that the financial sector’s cost of capital is not artificially low because government guarantees are being offered to them.

In many ways the 1930s reforms are a good benchmark because they were right around the time of a significant financial crisis in the States, the Great Depression.

“Shadow banking” developed in the United States, starting from the ‘70s, primarily to get around the various regulations that were put in place.

He would favour a sovereign bond issuance only when coupled with tight fiscal restraint.

My joint work with Raghu suggests that he is more than aware of the political economy concerns underlying the issuance of sovereign bonds.

I would say that a sovereign bond during Raghu’s term at RBI is a possibility.

I am absolutely proposing, either explicitly or implicitly, that we separate the unhealthy parts of the troubled banks from the healthy parts.

My research has focused on the fact that while there were market failures based on the originate and distribute model, and induced deterioration of mortgage underwriting quality, there were signals to the regulators on the collective housing market exposure building up on bank balance sheets, especially in most of the Western economies, notably in the US.

I would say in some sense there was regulatory success in India in that particular episode but, of course, the broader issue is that we simply do not have enough markets, such as various types of non-government bond markets and various kinds of derivatives. These are not yet developed to a point where corporations and banks can manage and hedge their risks much better.

I would certainly say that we are on the path of recovery. And it particularly helped that we probably looked best in terms of growth prospects as well in the last two years of growth, not just in the emerging markets but also including the developed economies.

Of course, we have a long way to go but I think gradually reform plans are coming into place. I think the fact that we managed to get the GST bill passed is I think is a big positive to the world.


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