1. Financial Market Developments Howard Davies Director The London School of Economics Mumbai - India Mumbai - India 23 rd January 2006

2. Five Questions 1.Liquidity in the financial system 2.Financial stability in an emerging economy 3.The globalisation of financial markets 4.Should India follow the UK’s example in setting up a single regulator? 5.Financial reforms in India and the road ahead

3. Indian Rupee (INR) to 1 US Dollar (USD) 1996 - 2006

4. Stockmarkets % change Dec 31 st 2004-Dec 30 th 2005, $ terms

5. Composition of financial stock, 2003 $ Trillions; percent Source : McKinsey Global Institute Global Financial Stock Database; Global Insight

6. Weak link between financial depth and wealth

7. Regional differences in financial stock composition, 2003 $ Trillions: percent

8. Three dimensions of change of the Bank of England Independence on interest rates Removal of banking supervision and debt management Monetary Policy Committee

9. Structure of Financial Regulation in 1997 MinistryRegulator(s) BankingHMTBank of England Building Societies etc HMT / DTIRegistry of Friendly Societies (3) Securities MarketsHMT / DTISecurities and Investments Board (SIB), plus Securities and Futures Authority (SFA) London Stock Exchange Fund ManagementHMTSIB, plus Investment Management Regulatory Organisation (IMRO) InsuranceDTIDTI Insurance Directorate Lloyds Personal Investments HMT / DTIDTI SIB, plus Personal Investments Authority (PIA) Occupational Pensions DWPOccupational Pensions Regulatory Authority (OPRA)

10. Financial centres ranking in terms of regulatory environment Source: Survey done by Corporation of London

11. Countries with Integrated Regulators 19861990199119982000200120022004 Kredittilsynet (Norway - March 1986) Finanstilsynet (Denmark - January 1990) Finansinspektionen (Sweden - July 1991) Financial Supervisory Commission (Korea - April 1998) Financial Services Agency (Japan - July 2000) Fjármálaeftirlitið (FME) (Iceland - June 1998) FSA (UK - December 2001)* BaFin (Germany - May 2002) Finanzmarktaufsicht (Austria - April 2002) Finantsinspektioon (Estonia - May 2001) CBFA (Belgium - August 2002) Agency of Financial Supervision (Kazakhstan - April 2004) * FSA fully integrated in 2001, but has existed since October 1997

12. Financial Reporting Council Audit regulation Accounting standards Corporate Governance Codes

13. EU Takeover Directive Common (supposedly) rules across the EU on takeovers Statutory authorities in each member state In UK, reform of the Takeover Panel with new powers

14. Self-Regulation Not as effective in highly competitive and diverse markets Can complement statutory regulation in some areas Cannot ensure comprehensive coverage, because of competition problems, so, Becoming less significant in developed markets