will take remedial action in case the limits are breached by any financial institution. the canadian framework consists of five stages viz., a “ normal ” stage, an “ early warning ” stage, a “ risk to financial viability or solvency ” stage, a “ future financial stability in serious doubt ” stage and a “ non - viability / insolvency imminent ” stage. each stage is identified by a set of conditions and a number of options for supervisory measures. in india, an early intervention system in the form of a prompt corrective action based on three indicators – capital to risk weighted assets, non performing advances and return on assets, has existed since 2002. threshold values for each of the indicators have been defined along with associated structured and discretionary actions. interconnectedness as a potential source of crisis was recognized in india much before the onset of the crisis and, as a result, in march 2007, rbi limited a bank ’ s inter bank liabilities to twice its net worth. a higher ibl limit of 300 per cent of net worth is allowed for banks whose crar is 11. 25 per cent. further, crisis prevention has been an integral part of regulatory framework in india. more recently, we set up the financial stability unit ( fsu ) within the reserve bank to interalia carry out macroprudential surveillance. since its formation in 2009, the fsu has published four financial stability reports ( fsrs ) on a biannual basis. in the most recent report published in december 2011, we introduced the financial stability indicator based on a combination of financial market stability, macroeconomic stability and banking stability indicators. we also introduced new tools for risk assessment such as the systemic risk survey and the systemic liquidity indicator in addition to improving the coverage of the network model analysis introduced in the previous fsr. most people are aware of rbi ’ s counter cyclical policies that won us accolades in our management of the crisis. however, we have also taken several measures to address systemic risk arising out of interconnectedness amongst financial institutions such as placing prudential limits on call borrowing and lending, limits on banks cross holdings of bank ’ s ownership, limits on exposure to single and group borrowers, etc. the further use and development of a macro - prudential policy toolkit to manage systemic risk is actively being pursued within the bank. bis central bankers ’ speeches concluding remarks recent experiences have clearly demonstrated that resolving a financial crisis is complex and costly. this

. in particular, i am sure that the crisis simulation exercises which have been designed as part of the programme will provide participants to don different hats, experiment with different aspects of the crisis toolkit available with policy makers and appreciate the importance of coordination between different authorities in dealing with and attempting to minimize the systemic consequences of a crisis. crises and their origin let me begin first by attempting to define a crisis. the word crisis originates from the greek word “ krisis ” – which means “ decisive moment ”. the oxford dictionary defines a crisis as “ a time of intense difficulty or danger ” while the cambridge dictionary describes it as “ a situation that has reached an extremely difficult or dangerous point ; a time of great disagreement, uncertainty or suffering ”. the term financial crisis, to be more specific, is broadly applied to a range of situations which encompass banking panics, disorderly functioning of markets, stock market collapses, bursting of asset price bubbles, currency collapses, sovereign defaults, amongst others. crises can happen anywhere, at any time, and often occur when they are least expected. history is peppered with crises that have varying origins – starting from the tulips mania of bis central bankers ’ speeches the 17th century to the dot com bubble of the 2000s and to the 2007 sub - prime crisis and the latest brouhaha over the sovereign debt crisis. origins of a crisis are hard to pinpoint. they can be caused by an act of nature – an earthquake or a tsunami ( as seen recently in japan ), for instance, which, within a very short span of time, can cause untold damage to the real economy, which can, in turn, affect the financial sector and governments. the origins of crises can also play out over a relatively longer period of building up of systemic risks in the macrofinancial system, as the recent global financial crisis demonstrated, shattering belief in what are now believed to be “ myths ” – the “ great moderation ” and the “ goldilocks economy ”. as central bankers and policy makers tasked with fostering financial stability, we are interested in both kinds of crisis. both have the potential to cause financial instability. both will need swift action if the fallout has to be managed and the collateral damage contained. but what interests us most are the crises which are a result of build up of risks over time and which we can take policy initiatives to influence and, perhaps, avert. each crisis has certain unique features and there is a tendency to consider each