Banks using 19th century tech, says IIMA director

The banking system is old hat and banks are using 19th century technology which is subject to lots of disruptions, said Professor Errol D’Souza, Director of the Indian Institute of Management, Ahmedabad, while speaking about financial markets at an international conference on banking and finance held at Gujarat National Law University (GNLU) in Gandhinagar on Saturday.

Talking about the banking crisis, D’Souza said, “The basis of banks is maturity transformation and when you realise that banks have maturity transformation problem, you insist on insured deposits. When banks misbehave, you ensure capital adequacy. When even that is not enough, you bring supervision and then all realise that the regulators are behind the curve. One of the reasons is that markets are very fast at innovating, and regulators, not being market participants, do not really know what innovations are working, and often by the time they catch up, a crisis has occured.”

“The regulator is fighting the last war. Some systems had revolving-door mechanism, like in America, which allowed market participants to come into regulatory body. It is a great way to get information into the system, use that information intellectually in order to stem any possible crisis,” he said.