The fall of the giant investment banks has again triggered the debate about the structure of banks and investment banks. While banks have capital and access to low-cost deposits, investment banks tend to be highly leveraged, using market borrowings to fund the positions on their balance sheets. When these assets rapidly lose value, as they have following the housing crisis, the apparent liquidity of the asset portfolio wanes, and leverage hits them hard. The war cry now is to consider a more stable structure, like that of banks. Perhaps, the question to ask now is whether it needs to be an either-or situation. We cannot herald the revival of the loan officer with all his limitations in knowing the market value of his loans and their default probability. If assets that are marked to market create unsustainable borrowing appetite, illiquid loan assets provide unduly low returns on deposits. As this crisis unfolds, we will hear these debates play out, and the much called-for changes to regulatory framework will begin to address this dichotomised view of what is a stable structure for a financial business.

No case for cut in oil prices
The sharp reduction in oil prices to $90 per barrel has led to clamours for a cutback in prices of petrol, diesel and cooking gas. In an election year, there is the possibility that the government may favour every possible tokenism that is voter-friendly. The pressure to reduce oil prices brings forth very starkly the lack of understanding of market mechanics in popular mindset. Every move to link domestic prices to international prices was stymied when prices were moving up. This not only led to excessive consumption and wastage even as the world was seeking demand cutbacks, but also a huge deficit for oil marketing companies. Now that oil price is falling, there is eagerness to align to market prices.

There are at least three reasons why an oil price cut is uncalled for. One, the depreciation in the rupee has dented much of the oil price fall. It is now more expensive to import oil. Two, oil marketing companies have borne a huge loss, translating into bigger deficits for the government from the subsidies it has doled out. In the interest of fiscal prudence, there is no scope to rush into a price cut. Three, the current prices in domestic markets correspond to $67 a barrel, a price no one in the international markets expects oil to reach.

Cost of financial inclusion
The Raghuram Rajan Committee submitted its report to the planning commission last week. In a pragmatic classification of reforms, it has listed reforms that are easiest to implement, as they would not need legislative change or political consensus. The opening of a no-frills bank account for every household, and providing a national ID are among these. Given our low banking penetration, this suggestion, if implemented, will make a big change in the availability of credit, enabling of saving and financial inclusion. It will also result in a more efficient distribution of benefits to the poor, through direct credits into their accounts. The only question is whether banks, given their current size and orientation, can and would incur the costs of such penetration. Starved of capital, PSU banks may find it tough to fund such expansion; private and foreign banks face restrictions on expansion, apart from access to capital.

Unmitigated disasters
After Kosi it is the Mahanadhi that is threatening to consume large tracts of land, and cripple the economies of several villages. It is sad that we continue to be held to ransom by nature, and have no plan in place to protect the affected populations. Apart from relief funds and camps, and calling the army to rescue the marooned, there is little we have to show as response. The national conscience is assuaged with doles to relief funds, and packing off used clothes and linen to these locations.

Economic debates and calls for action tend to be focused more on the financial sector, and not on the real sector. Farmer suicides are about lack of alternate sources of income; the disaster from bamboo flowers is a recurring economic problem in the north-east; and so are floods in several parts of the country. These issues seem to get relegated to the background, as everyday news focuses on financial markets, index levels, and the gains and losses of a microcosm. When will public opinion be roused about the real economic issues of the day, if at all?

The curious case of bank strikes
There is something curious about the strikes announced by bank unions. They always align with holidays. This time the strike against banking reforms has been announced on 24th and 25th of September. The 26th is a restricted holiday and 27th a Saturday. The next week features the half-yearly closing and two holidays for Ramzan and Gandhi Jayanthi. I cannot recollect a bank strike on a Wednesday, for example. Unions truly take care of employee needs for holidays and off-days!