Restrictions on the size and ranges of bank activities and the interconnectedness of banks would not only increase systemic stability, it would also enhance competitiveness, he said on Thursday.
Citing the bust of derivatives market that set off the financial crisis and the latest scandal in fixing of the London Interbank Offered Rate, Stiglitz said that markets are imperfect and non-transparent. He also said that the shadow banking system which includes investment banking, non-banking finance companies must be tightly regulated as the impact on the financial stability from shadow banks has increased
Interestingly, Stiglitz advocated limited independence to central banks and said that the Reserve Bank of India has done far better than the US Federal Reserve even if its autonomy was far less than its US peer.
There is no such thing as truly independent institutions. All public institutions are accountable, and the only question is to whom, he said.