reserve bank avoided participation in the primary issues in recent years except to prepay external debt or as a transition measure, last week. these de facto arrangements, proven to be workable, are coming into effect through legislative sanction only on april 1, 2006. financial stability financial stability is difficult to define and thus difficult to measure. basically, it refers to the smooth functioning of the financial markets and institutions but it does not mean absence or avoidance of crisis but presence of conditions conducive to efficient functioning without serious disruption. the relevant legal, institutional and policy frameworks are wide ranging and policy instruments at the disposal of authorities very varied. in a way, the financial stability objective is shared with a set of public policy bodies and professional bodies like auditors and actuaries but the primary responsibility for overall financial sector efficiency and stability generally rests with the central bank. the plausible reasons for such a responsibility are the major elements contributing to financial stability, namely, the oversight of the financial infrastructure, in particular payments systems ; regulation and supervision of financial institutions ; crisis management and provision of liquidity ; and macro financial stability encompassing monitoring not only the behaviour of all important players in the financial sector but also non - financial sector balance sheets as well as that of the governments. financial sector reforms and stability national authorities have typically adapted the design of financial sector reforms - the pace, sequencing direction and ambit - to country - specific situations, mindful of the threats to financial stability. the relevant considerations may be summarized here. first, there is substantial consensus, backed by some historical and cross - country evidence, that there are strong complementarities between financial stability and macroeconomic stability. second, a key issue in the design of financial sector reforms is the pace of reforms in the context of ensuring financial stability. opinion remains sharply divided over the choice between a big - bang approach or shock therapy and a cautious or gradualist strategy. on balance, it appears, the reforms need to be introduced more as a process than as a short - lived event while the process moves fast enough to produce reasonable results without running the risk of disruption in the short run. third, in case the gradualist approach is adopted, the question that arises is what should be the optimal sequencing of reforms which secures financial stability. such sequencing is crucial for ensuring inter - sectoral balances and avoiding the chances of disproportionality. fourth, no reform process, however, paced and sequenced, can be consistent with financial stability if it

positive trends. however, currently almost every central banker in this globalised world keeps wondering whether the night ahead will continue the dream run and if so, when will it run out of steam. the concerns of central bankers today arise out of what has been described as stable disequilibrium with every day adding to potential disequilibrium while continuing to be stable. the perceived risks arise mainly out of global imbalances and outlook for oil prices, particularly in the light of emerging geo - political situation. most market participants seem to sense these risks but this sentiment does not appear to be reflected in the pricing of risks. risks do not disappear but they get transferred to another part of the system. the macro policies in emerging markets in particular have to factor in these risks while continuously balancing financial sector reform and stability considerations. more important, for the regulators, monitoring where the risk lies has become very difficult due to emergence of large conglomerates, sophisticated market instruments such as derivatives and presence of players like hedge funds. the good news is that there is international cooperation among central bankers to mitigate the impact of such risks. the actuaries can certainly help the process of analysing the risks in insurance sectors that do affect a large segment of population that in fact seeks to minimize such risks through insurance. let me conclude by thanking the organisers for provoking me to think aloud and share my thoughts on a subject of common interest to all of us assembled here. i wish the conference fruitful deliberations, well balanced by pleasant stay and memories.