the subject area of this programme from the fed reserve experts. i thank the federal reserve system bis central bankers ’ speeches for their continuing support in training our officials on various supervisory areas. i am certain that the inputs received from this programme would assist in improving knowledge and understanding of the relevant subject areas both for the relatively new as well as experienced inspecting officials who have gathered here, which is of particular significance in the present context of moving to a risk based approach to supervision coupled with proposed migration of some of the banks to advanced approaches for computation of capital in the near future. i wish the programme a great success and wish the participants a fruitful learning experience. references bank for international settlements ( 2011 ), ‘ revisions to the basel ii market risk framework ’, february reserve bank of india ( 2012 ), ‘ financial stability report ’, december rbi guidelines on implementation of internal models approach ( ima ) for market risk philippe jorion ( 2009 ), ‘ value at risk - the new benchmark for managing financial risk ’, tata mcgraw hill education private ltd board of governors of federal reserve system ( 2013 ), consent order with jpmorgan chase and co, january fsa ( 2012 ), notice to ubs ag, november reserve bank of india ‘ guidelines on implementation of basel iii capital regulations in india ’ nassim nicholas taleb ( 2010 ), ‘ the black swan - the impact of the highly improbable ’, penguin books bank for international settlements ( 2009 ), ‘ findings on the interaction of market and credit risk ’, working paper no 16, may rbi guidelines on advanced measurement approach ( ama ) for calculating operational risk capital charge bis central bankers ’ speeches

g gopalakrishna : reserve bank of india – federal reserve system market risk analysis seminar inaugural speech by mr g gopalakrishna, executive director of the reserve bank of india, at the reserve bank of india – federal reserve system market risk analysis seminar, new delhi, 21 january 2013. * * * i acknowledge the contribution of mr n suganandh, dy. general manager, dept. of banking supervision, in preparing this speech. 1 ) i extend a warm welcome to the faculty from the federal reserve and all the participants of this programme. i am happy to inaugurate the market risk analysis programme. the periodic programmes involving the fed reserve experts have been welcomed wholeheartedly by the participants and we are glad to have another edition of the training programme, with focus on market risk. i hope the participants would be immensely benefited by this programme, just like the participants in the earlier programmes. the programme also comes in the context of the proposed seminal change in the rbi ’ s banking supervision methodology and process this year. i refer to the introduction of the risk based supervision covering nearly half of the commercial banks in the first phase from the ensuing cycle onwards. focus on risks and tailoring our supervisory stance based on the specific risks in a financial institution would be the cornerstone of the new approach towards banking supervision. in this milieu, there is a need for an enhanced understanding of the major risk categories individually as well from a collective perspective in terms of the interactions among the major risks. 2 ) it has now come to be accepted that the inter - connected world has ensured that the uncertainties in the advanced economies find their way to developing nations through various channels like the trade, finance, commodity price and confidence channels. critically, the uncertainties are reflected in the volatility of capital flows to emerging market which in turn reflects on the volatility of domestic financial market variables. to understand some indicators of the linkages, we can see that the ratio of india ’ s external trade to gdp has increased four - fold – from 8 per cent of gdp in 1972 to nearly 40 per cent now while the ratio of two - way flow of goods and finance in and out of india to its gdp which incorporates non trade related flows, has increased eight fold over last four decades, from 14 per cent in 1972 to well over 100 per cent now. apart from linkages with the global developments, there are several domestic factors which are also important in the context of increasing trend of volatility in