It is well known that such systems can exhibit the following features: non linearity and discontinuities (a good example being liquidity freezes); path dependency; sensitivity to initial conditions. All this accounts for truly unpredictable behaviour. It creates uncertainty in the Knigthian sense: even with full knowledge of the "fundamentals" it may be impossible to associate a probability distribution to future states of nature. However, complexity creates the possibility of extreme events. It does not make them happen necessarily. Other factors may also contribute: one of them is human behaviour. 2. Financial systems are "human" systems. Their dynamic is shaped by the way human beings react to changes in their environment. Those reactions can help and amplify initial shocks to a point that a real "catastrophe" may occur. Herd behaviour has long been known as an essential feature of financial markets. More subtly, individual reactions, by themselves rational, can, by the virtue of their mutual interaction, produce strong amplification effects. This has been luminously shown by Danielsson and Shin in their seminal article on "endogenous risk", based on the now famous parable of the Millennium Bridge. Extreme events and modern finance With slight exaggeration, a case can be made that modern finance has been built, in practice, if not in theory, on implicit tolerance and widespread ignorance of extreme events. BIS Review 151/2008  1  The use of models Models are extensively used to assess risks and price assets. Nearly all models are based on the prevalence of "normal" (Gaussian) distribution as the basic tool.

The formation of the VBI Community of Practitioners manifests the leadership by Islamic banks in this area with some of its members also being part of the Joint Committee on Climate Change (JCC) that was recently formed in September and chaired by the Bank and Securities Commission. The JCC aims to look at and create greater synergy in development of climate-related solutioning for the capital and financial markets. It should be noted that many VBI offerings of Islamic banks are already meeting contemporary sustainability themes but more will be forthcoming. Those already on offer include green and specialised financial products and services for retail and SME markets, financial solutions for lower income households, custom products for women entrepreneur and SMEs, green solutions that promote environmental sustainability and innovative solutions that promote physical and mental well-being. Takaful operators are also taking steps to explore value-based protection for their customers. A dedicated task force has been formed by the takaful industry to formulate a strategic roadmap to advance VBI in their business offerings and practices. VBI also encourages Islamic financial institutions to play a greater nurturing role in advocating sustainable practices among clients, such as adoption of Malaysian Sustainable Palm Oil Certification, as well as providing necessary funding and technical advisory services. Part of the progress in advancing VBI as a driver for positive change in the Islamic financial services industry has been the Bank’s role in working collaboratively with the VBI Community of Practitioners.