Raghuram Rajan: Warnings and Reforms

How Raghuram Rajan warned of financial risks at Jackson Hole in 2005, served as RBI Governor from 2013 to 2016, and pushed banks to recognise bad loans.

Raghuram Rajan (born 1963) is an economist at the University of Chicago.

The 2005 warning

As IMF Chief Economist (2003-2006), Rajan presented a paper at Jackson Hole in 2005 warning that financial innovation had made the system riskier.
Many dismissed it; the 2008 crisis later seemed to vindicate him.

Fault Lines

His book Fault Lines (2010) examined causes of the 2008 crisis, including inequality and credit.

RBI Governor

Governor of the RBI from September 2013 to September 2016:

Stabilised the rupee after the 2013 taper tantrum.
Moved towards inflation targeting.
Launched the Asset Quality Review (2015), forcing banks to recognise bad loans.

Other work

He studied financial development, including with Luigi Zingales in Saving Capitalism from the Capitalists (2003).

Legacy

His push on bad loans paved the way for cleaning up India’s banks.

The asset quality review

Under Rajan, banks had to admit that many big loans were bad, showing true losses that had been hidden.

Thinking the 2008 crisis was completely unforeseen

Rajan warned of financial risks in 2005.

Key takeaways

Rajan warned of financial risks at Jackson Hole in 2005.
He was IMF Chief Economist in 2003-06.
He was RBI Governor from 2013 to 2016.
His asset quality review exposed bad loans.