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New era of global finance?

Sep 7, 2009

Is this the death of investment banking as we know it? After all, its bluff has already been called by the recent financial crisis. It is being widely believed that the bankers' pay structures that tend to reward short term performance and encourage excessive risk taking was largely responsible for the situation the global financial system is in today. And hence, if similar catastrophes were to be prevented in the future, bankers need to be reined in. A big step towards doing the same may have been achieved in the recently concluded G20 meeting for finance ministers and central bankers. As per Bloomberg, there appeared unanimity among finance officials of the G20 on a plan that would alter bonus structures of banks and force lenders to hold more capital to make them more crisis proof. "We have broad agreement on a very strong set of principles and objectives for building a more stable global financial system. We need to move now to put that framework in place," this is how Tim Geithner, the US Treasury Secretary chose to put it across.

While the developed nations, most of all the US have indeed shown the right intentions, the question remains that how many of the new rules and regulations will find their way into the rule book for US banks. The US banking industry in recent years has become a very powerful entity and there have been widespread allegations that they do manage to pull a lot of strings in Washington. Whether they succeed in scuttling this latest attempt that seeks to curb their animal spirits and aims to bring their compensation structure in line with other industries, remains to be seen. If they don't then that would indeed mark the beginning of a new era of the global financial system.

Monsoons: Better late than never
A late surge in monsoons seems to have rekindled hopes that the growth in India's GDP this fiscal may not be that bad after all. As per a leading daily, the rainfall in the country over the past week has been 4% more than normal with even regions like Haryana, Punjab and Delhi that till the start of September had witnessed very scanty rainfall witnessing some sort of improvement. And with the spurt likely to continue over the next week or so, there could be notable improvement in the crop production in the country and also the income of rural India.

It should be noted that a couple of weeks back, with weak monsoons as the backdrop, India's planning commission had projected a worst case scenario GDP growth of 5.5% for the current fiscal. A far cry from the 6.7% growth that we managed to achieve for the year ended March 09. Now, with monsoon deficit expected to come down, the number will most likely be revised upwards in the region of 6%-6.5%.

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