However, the day that Sweden becomes a member of EMU and we have the euro as currency, the portfolios of the insurance companies will appear rather remarkable if a predominant part of the risks in interest-bearing securities is in five housing loan institutions. Even if housing bonds are as gilt-edged as possible, the insurance companies in this situation will feel a need of increased diversification. The main argument for enabling the Swedish housing companies to issue gilt-edged bonds is naturally that competitors in Europe issue them and they are established in the market. They would be easier to sell to investors, carry a higher liquidity and provide lower interest rates than traditional Swedish housing bonds. This would facilitate financing and hopefully give the consumers lower interest rates. There is undoubtedly something in this line of reasoning. However, the Riksbank has taken a critical attitude to this proposal more for reasons of principle. The housing institutions have every opportunity themselves – via clauses in the bond contracts or even in articles of association – to create the collateral arrangements that they consider appropriate and thus give their bonds the gilt edge that they consider necessary to facilitate financing. If the state assumes the responsibility of legislating about the design of bonds and moreover to check compliance by institutions, this is a regulation that cannot be motivated by concern for the stability of the financial system but rather aims at improving the institution’s profitability by reducing financing costs.

On the other hand, the growing interconnection and internationalisation of infrastructures result in new kinds of transmission channels (often cross-border), through which the credit or liquidity problems of individual market participants can spread to other participants. In the new environment, operational problems experienced within individual financial market infrastructures can also spread much more rapidly to a larger number of players. A working group is currently dealing with precisely these issues. It was set up by the Committee on Payment and Settlement Systems (CPSS) of the Bank for International Settlements (BIS) and one of the participants is the SNB. What is already clear is that the advantages of internationalisation clearly outweigh the drawbacks so far. Any threats to financial stability would have to be countered by modifications to the systems’ architecture, the applicable rules and oversight. BIS Review 123/2006  1  Tentative adjustment to market developments While financial market infrastructures were internationalised quite rapidly, they repeatedly lagged behind the deregulation of the financial markets. In today’s environment, it is possible for innovative financial products to gain popularity quickly and to achieve enormous trading volumes shortly after their introduction. A recent example is the rapid growth in the market for credit derivatives. While the trading volume of credit derivatives absolutely exploded in the last decade, the efficiency of the transaction confirmation and settlement processes for a long time left much to be desired. As a consequence, the backlog of concluded, yet unconfirmed transactions grew steadily.