The Hindu Business Line : `Investors can raise bar for market participants'

INCREASED investor activism may help improve the functioning of financial market participants, according to Mr Nachiket Mor, Executive Director, ICICI Bank.

Mr Mor said in the absence of a well-developed market, the performance of participants could be measured by marking it to models. ``Using advanced financial models and our expertise in mathematics, perhaps the economic value added by entities can be measured, '' he said.

Instead of simply comparing historical data, the profit and loss accounts and balance sheets could perhaps be marked to models every quarter. This would help show the economic value added on a quarterly basis, he told a seminar on `Designing of a sound financial market structure in post-crisis Asia' organised by ICICI Research Centre.

Speaking at the seminar, Dr Masaru Yoshitomi, Dean, Asian Development Bank Institute, said prudential and supervisory regulations should be strengthened. Dr Yoshitomi, however, concurred with a participant that "over-regulation" could be counter-productive during recessionary times. He said regulation should be relaxed and suited to local needs in such times.

He said the bond markets can be strengthened by strengthening banks. Government interference and abuse of connected lending should be eliminated from banks' financing operations. Directed lending and bail-outs should be minimised to bolster the banking system. The disadvantages of intermediate financial market structure should be reduced by introducing appropriate corporate structure in banking organisations. Appropriate legal form for distinguishing banking business from securities business should be identified.

On the structure of banking entities, Dr Sayuri Shirai, Visiting Scholar at ADB Institute, said the bank holding company form limits spill over of risk associated with securities business to the banking sector. Dr Shirai said it also limits conflicts of interest and ensures a level playing field between affiliated and independent investment houses.

She, however, said it reduces the advantages of economies of scope and information as against the universal banking form. Firewall provisions were ineffective in extraordinary situations in the form, she added.

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