Dodd-Frank 30 Day Countdown: Day 18
Insight Robin Powers · June 28, 2011
India and U.S. Discuss Financial Reform
U.S. Treasury Secretary Timothy Geithner held meetings in Washington yesterday and today with India’s Finance Minister Pranab Mukherjee in the second round of Economic Partnership talks between the two countries. During these meeting, Geithner, Mukherjee, and other attendees discussed some of the “financial sector reforms,” in an effort to bridge the economies of two large nations and work toward a consistent (if not uniform) approach to regulation. "Our interests are pretty complementary as a whole," Geithner explained.
India’s OTC derivatives market has long been regulated by its central bank, the Reserve Bank of India (RBI). In India, a centralized counterparty, the Clearing Corporation of India, or CCIL, serves as both a reporting platform for the OTC derivatives market and as a clearing agency for trade settlements. Banks and dealers have only 30 minutes to report their trades, which in turn allows for government observation of both sides of a swap. Since a trade is reported almost instantaneously by at least one member in the transaction, Indian regulators are able to monitor systemic risk. However, similar to U.S. concerns about concentrating risk in central clearing houses, if the single centralized counter party makes any missteps, there is potential for system-wide consequences.
In addition to global reform efforts, Indian lawyers have been lobbying for close-out netting provisions to add legal certainty to the OTC derivatives market. As a result of different bankruptcy regimes for the private sector and governmental entities, the lawyers argue that there is increased risk when dealing with state-owned banks. They have expressed that netting legislation, or even an amendment to the bankruptcy legislation, would decrease any legal uncertainties in the market.
Mukherjee said reforms in India were "a constant exercise" and pledged that India would press forward with its reform agenda and the legislation that would enable it.
-Stephanie Kane co-authored this post