During the crisis, it was observed that the losses in the trading books of banks were several times the losses as computed by the VaR models. As regards the counter party credit risk, it was found that most losses arose from the mark to market losses due to deterioration in the credit quality of the counterparties rather than due to outright default.
Central to this process is the role of the Reserve Bank in not only ensuring that monetary policy is appropriate but that the financial system is stable and sound. This has become more critical in light of the impact of the recent global financial crisis.