stability unit which will make regular and systematic assessment of the stability of the indian financial system. 13. lord turner will be speaking to us today on “ after the crises : assessing the costs and benefits of financial liberalization ”, a topic of great obvious relevance. 14. a study of financial crises shows that almost every crisis is preceded by, if i may use what is by now a cliche, “ irrational exuberance ” of the financial sector with the growth of the financial sector outstripping the growth of the real sector engendering a belief, bordering on hubris, that real value can be created by sheer financial engineering. take this crisis for example. 15. in the world that existed before the crisis – a benign global environment of easy liquidity, stable growth and low inflation – profits kept coming, and everyone got lulled into a false sense of security in the firm belief that profits will keep rolling in forever. herb stein, an economist, pointed out the truism that, “ if something cannot go on for ever, it will eventually stop. ” but no one paid attention. the magic of the financial sector gave it such a larger than life profile that we began to believe that for every real life problem, no matter how complex, there is a financial sector solution. now, of course, we know better – for every real life problem, no matter how complex, there is a financial sector solution, which is wrong. 16. take the case of the united states. over the last 50 years, the share of value added from manufacturing in gdp shrank by more than half from 25 per cent to 11 per cent while the share of financial sector more than doubled from 3. 6 per cent to 7. 5 per cent. the job share of the manufacturing sector declined by more than half from 29 per cent to 11 per cent while the job share of the financial sector increased by over a third from 3. 5 per cent to 4. 6 per cent. the same trend is reflected in profits too. over the last 50 years, the share of manufacturing sector profits in total profits declined by more than half from 49 per cent to 21 per cent while the share of profits of the financial sector increased by more than half from 17 per cent to 27 per cent. clearly, the excessive risk - taking behaviour of the financial sector raised the value - added of the sector beyond a sustainable level making the melt down, in retrospect, inevitable. 17. forgotten in the eu

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