SEBI Virtual Museum (Dharohar)
On Republic Day (Sunday, January 26), the Securities and Exchange Board of India (SEBI) launched a virtual museum (called Dharohar) on the Indian securities markets. This website has an image gallery featuring share and bond certificates from the 17th, 18th and 19th centuries. It also has videos of interviews with former SEBI Chairman, Whole Time Members, and others who have played an important role in the Indian securities markets. This section includes an interview with me: the interview highlights as well as the full interview are available in the virtual museum.
Some of the issues discussed in my interview are listed below along with the approximate time segment of the video where the discussion occurs:
- The evolution of the Indian securities markets (At around 0:30)
- Regulation versus supervision (At around 07:30)
- Transition from Badla to equity derivatives (At around 10:00)
- Risk management and market design in equity derivatives market (At around 15:00)
- Importance of cash market and derivative market liquidity (At around 22:30)
- Successes of equity market reforms (At around 26:00)
- SEBI Secondary Markets Advisory Committee (At around 30:00)
- Corporate bond market (At around 37:00)
- Employee Stock Option (ESOP) regulation (At around 42:30)
- Disclosure best practices (At around 49:00)
- Impact of technology on markets and regulation (At around 54:00)
- Equities as a long term investment (At around 1:00:00)
- Role of advisory committees (At around 1:03:30)
Posted at 6:38 pm IST on Wed, 29 Jan 2025 permanent link
Categories: miscellaneous
My conversation with Sashi Krishnan for NISM Masterclass
Last month, Sashi Krishnan, Director, National Institute of Securities Markets (NISM) interviewed me for the NISM Masterclass series in a wide ranging conversation that lasted more than an hour. The video of this conversation has now been published at the NISM website.
Some of the issues discussed are listed below along with the approximate time segment of the video where the discussion occurs:
- The 1990s debate in India about the abolition of the Badla system, and its replacement with equity derivatives. (At around 0:03:00)
- The "excessive" size of the Indian equity derivatives market. (At around 0:06:30)
- The lack of an exchange traded interest rate derivative market in India, the failure of Indian institutions to contribute to market development, and the role of speculators in providing liquidity. (At around 0:11:00)
- The growth in India's stock market capitalization and its ratio to GDP. (At around 0:19:30)
- The boom in the IPO market in India in the last year or so. (At around 0:23:00)
- Investment restrictions on insurance companies and pension funds. (At around 0:28:00)
- Mis-selling and buyer beware. (At around 0:30:30)
- Efficient Markets Hypothesis and factor investing. (At around 0:34:00)
- Passive investing. (At around 0:43:45)
- 24/7 securities trading. (At around 0:48:30)
- Bitcoin and the Blockchain. (At around 0:50:00)
- India's potential for 8-10% growth. (At around 0:59:30)
- The relationship between GDP growth and stock market performance. (At around 01:03:00)
- Financial literacy. (At around 01:05:45)
Posted at 9:17 pm IST on Mon, 6 Jan 2025 permanent link
Categories: miscellaneous
Banking before the modern era
The history of banking in the modern era (last 500 years or so) is reasonably well known. However, I knew very little of banking before that era (except that it was dominated by the Italians). Two recent books helped me understand pre-modern banks a little better:
Mehmet Baha Karan, Wim Westerman, and Jacob Wijngaard (2024) A history of banks: from the Knights Templar to the present era, Springer Cham.
Zannoni, Paolo (2024), Money and promises: seven deals that changed the world. Columbia University Press.
Only the first couple of chapters of these books deal with the pre-modern or medieval era, and I found these chapters a little sketchy, but they motivated me to probe a little deeper into this subject. Both these books cited a few papers on the subject, and I found several more through my own searches.
My understanding based on all this is that (a) there were arguably some enterprises resembling deposit banks in republican and imperial Rome two millenia ago (Harris, 2006), (b) the Knights Templar were in some sense a deposit bank in the 12th century (Ferris, 1902), and (c) there were certainly many deposit banks in Italy from around the 13th century (Roberds and Velde, 2014; Ugolini, 2020; and Usher, 1934). However, Usher does not believe that any of these were banks in the real sense of the word, as according to him, the "lending of credit" is the essential function of the banker:
The lending of coined money, with or without interest, merely transfers purchasing power from one person to another. The mere acceptance of deposits of coined money involves no banking activity, even if the money is used in trade. In such a case, too, there is merely a transfer of purchasing power. Banking begins only when loans are made in bank credit.
Usher also believes that the negotiable instrument is essential for a true bank, as it is the negotiable instrument that makes a bank an issuer of money. He points out that negotiable instruments like the cheque became widespread only in the sixteenth century, and commercial law exhibited a positive bias in favour of verbal contracts all through the fifteenth century. De Roover (1943) also highlights the use of oral orders in lieu of written checks in medieval banking.
Munro (2003) emphasizes the importance of usury laws that impeded borrowing and lending, and points out that these restrictions were relaxed only in the 16th century. If this is true, India should have had an advantage in the development of banking in pre-modern times because of the absence of usury laws even under Islamic rulers (Habib, 1964). Habib mentions that during the Delhi Sultanate, when a Muslim theologian condemned one of Muhammad Tughluq's policies on the ground that the State might earn an usurious gain from the transaction, the Sultan simply executed the hapless scholar, and continued to implement the policy. Unfortunately, most of the material that I have seen on banking in India does not discuss the pre-Mughal period. So I am unable to throw any light on the hypothesis that India was a more conducive environment for the emergence of banks in that period.
An interesting question is whether recent developments in the field may be taking us back full circle to something resembling pre-modern banking. With the relentless growth of bond markets and the emergence of private credit, lending is increasingly moving out of banks to long term investors. As this trend continues, banks may start becoming narrow banks. A few decades from now, banks may not look very different from the deposit banks of the pre-modern era. The type of banking that flourished from the 16th to the 20th century might then be seen as an aberration caused by immature financial markets and underdeveloped non bank institutions.
References
De Roover, R., 1943. The lingering influence of medieval practices. The Accounting Review, 18(2), pp.148-151.
Ferris, E., 1902. The financial relations of the Knights Templars to the English crown. The American Historical Review, 8(1), pp.1-17.
Habib, I., 1964. Usury in medieval India. Comparative Studies in Society and History, 6(4), pp.393-419.
W. V. Harris, 2006, A Revisionist View of Roman Money, The Journal of Roman Studies, Vol. 96 (2006), pp. 1-24
Munro, J.H., 2003. The medieval origins of the financial revolution: usury, rentes, and negotiability. The International History Review, 25(3), pp.505-562.
Roberds, William and Velde, Francois R., Early Public Banks (February 11, 2014). FRB of Chicago Working Paper No. 2014-03, Available at SSRN: https://ssrn.com/abstract=2399046 or http://dx.doi.org/10.2139/ssrn.2399046
Ugolini, S., 2020. The historical evolution of central banking. Handbook of the History of Money and Currency, pp.835-856.
Usher, A.P., 1934. The origins of banking: the primitive bank of deposit, 1200–1600. The Economic History Review, 4(4), pp.399-428.
Posted at 2:22 pm IST on Fri, 3 Jan 2025 permanent link
Categories: banks, financial history, interesting books