Central Banks: Wicketkeepers in Financial Stability

Mumbai, Oct 15 (PTI) Reserve Bank of India Deputy Governor Swaminathan J has likened central banks to wicketkeepers in cricket or goalkeepers in football who often go unnoticed in successes but are always in the spotlight during failures.

In his address at the RBI@90 High Level Conference on 'Central banking at Cross Roads' on Monday said over the years, the role of central banks has significantly evolved.

Initially seen as the lender of last resort, today, central banks are equipped with a broad range of tools -- regulatory, supervisory, and monetary -- to ensure the stability of the financial system.

The financial sector, he said, is the backbone of the economy, enabling efficient allocation of resources, managing risks through various instruments, and ensuring smooth payments and settlements. It performs crucial functions that support investments and drives economic growth.

Therefore, the financial sector becomes the cornerstone of a well-functioning economy.

However, the financial sector is vulnerable to risks -- especially systemic ones that, if left unchecked, can have far-reaching consequences, the deputy governor said.

On the one hand, financial risks can build up over time, especially in periods of economic euphoria and on the other, the growing interconnections between financial institutions, markets, and the broader economy make the system more open to shocks, he said.

"In this increasingly volatile environment, building resilience is crucial to maintaining financial stability. However, resilience is a balancing act -- too much emphasis on safeguarding can stifle innovation and growth, while too little can expose the system to significant vulnerabilities," he said.

Finding that right balance so that we can have a robust financial system that can weather crises without constraining economic progress is one of the key challenges that we face today, Swaminathan said.

"Indeed, central banks are much like wicketkeepers in cricket or goalkeepers in football -- often unnoticed in success but always in the spotlight during failure. When everything works seamlessly, their efforts remain behind the scenes, often taken for granted.

"However, when a crisis occurs, they are asked as to how they could allow the ball to slip through their fingers! In addition, central bankers are also tasked with preventing further damage and restoring stability quickly," he said.

The senior RBI official also emphasised that in India, the Financial Stability and Development Council (FSDC), chaired by the Union Finance Minister, along with its sub-committee led by the Governor of the Reserve Bank, has been effectively facilitating discussions and enhanced understanding of risks across the financial sector.

Apart from inter-regulatory coordination, the RBI also actively engages with the industry through regular engagements/interactions including conferences with the Boards of supervised entities, periodic meetings with the MDs & CEOs, Heads of Assurance functions as well as interactions with auditors, Swaminathan said.