Financial sector super regulator -Financial Stability and Development Council (FSDC) in its just concluded meeting has discussed forming of a platform to enlarge the number of too big to fail institutions. After the meeting of the FSDC, the Finance Ministry statement noted that efforts are undergoing to map out the big financial sector institutions that shows the symptoms of too big to fail, including insurance companies.
FSDC is the coordination body of the financial sector regulators; Finance Minister is the Chairman of the Council. Too big to fail entities are generally big financial institutions especially banks that resist regulator’s instructions and takes too much risk. The global financial crisis of 2007 was mainly attributed to excessive risk taking by big banks.
After the financial crisis, financial sector regulators, particularly central banks have launched several measures to tame big banks.
The RBI identified domestic systemically important financial institutions and imposed more capital infusion on them. At present, SBI and ICICI are categorized as systemically important institutions. The government plans to include other financial sector majors like insurance companies under systemically important financial institution category.
“The council discussed issues relating to developing a comprehensive framework for identification of SIFIs (systemically important financial institutions) across all sub-sectors of the financial sector,” said the finance ministry statement about the FSDC meeting.
On the general economic environment, Finance Minister Arun Jaitely observed that the challenge in front of the government is to improve the performance of PSBs, activating stalled projects and increase private sector investment.
The meeting also assessed Brexit challenges for Indian economy. Finance Minister clarified that India will continue in the state of preparedness to mitigate any adverse effects from Brexit.