Political and Economic Notes:
FRDI Bill Organised Loot of Middle Class Depositor
The Central government introduced in August 2017, the Financial Resolution and Deposit Insurance Bill, 2017( FRDI Bill) in the Lok Sabha which was later sent to a Joint Parliamentary Committee for study and report back before the end of next budget session.
The aim of the Bill is to regulate the exit of financial firms and insulate the larger financial system from being effected by their failure. These financial firms, called service providers in the Bill, include commercial, regional and cooperative banks, insurance companies, payment system operators, Non-Banking financial companies( NBFC), pension fund operators, mutual funds and securities firms.
The bill proposes to establish an all-powerful financial resolution authority – a“ Resolution Corporation”( RC). The RC will have powers to acquire and transfer the assets of, even liquidate, any financial service provider in case of its probable failure.
At present, the Indian financial sector is being regulated by various institutions like Reserve Bank of India( RBI) for the banks and NBFCs, Insurance Regulatory and Development Authority( IRDA) for insurance sector, Securities and Exchange Board of India( SEBI) for securities and mutual funds and Pension Funds Regulatory and Development 12
Authority( PFRDA) for pension fund managing companies. All these bodies were formed under the Acts passed by the Parliament. Banks and insurance firms belonged to public sector are governed by separate laws. The FRDI Bill intends to amend about 20 of these laws to bring the resolution process of any probable failure under the RC. The Background
After the financial crisis in 2008 and trillions of dollar bail-outs for the banking sector, the imperialist powers wanted a regulatory mechanism. So G-20 formed Financial Stability Board( FSB) which adopted“ Key Attributes of Effective Resolution Regimes for Financial Institutions” in October 2011. This was endorsed by the Heads of G-20’ s Cannes summit in November 2011 as the“ New International Standards for Resolution Regimes”.
The FSB’ s recommendations are based on the premise that the global financial crisis of 2008 was the result of failure of“ too-big-tofail” banks and not because of speculative activities indulged by these banks. Thus it tries to conceal the truth that 2008 crisis was inherent in the capitalist system which drives by its thirst for ever increasing profits. Hence, these G-20’ s‘ international standards’ are market based solutions and will not go to resolve the problem created by the very same market forces as the later experience proved. It is clear that this solution is suited to the imperialist economies and not equally suitable to other countries of Asia, Africa and Latin America which have varied economic structures.
This became pronouncedly clear in its implementation. Countries like US, UK, France, Germany, Italy, Netherlands, Spain, Switzerland and Hong Kong had fully implemented the resolution tools recommended by FSB, while Japan implemented all but bail-in clause. Regarding the insurance companies, none of the seven recommendation of FSB was implemented except by Japan, Hong Kong and USA. On the other hand, Argentina, Austria, Brazil, China, Indonesia, South Korea, Mexico, Saudi Arabia,, Singapore, South Africa and Turkey have implemented FSB’ s reforms partially – none of them implemented bail-in provision and even some have not provided for the bridge institutions. Only nine out of the 24 member-states of FSB have opted for establishing a single resolution authority while the other states have opted for some form of co-ordination arrangements among the existing regulatory bodies. This clearly shows that there is no need to fully implement the financial resolution methods and tools meant for imperialist economies in India.
Class Struggle