There is also a possibility that employers would resist demands for higher wage increases to a greater extent than before, as it would no longer be possible for a depreciation of the krona to help maintain competitiveness. Increased mobility in the labour market? If domestic prices and wages are insufficiently flexible when competitive conditions change, the labour force may instead choose to leave a country, region or sector and seek employment elsewhere. And if there is a labour shortage, overheating can to some extent be counteracted by, for instance, bringing in labour from other countries or regions with higher unemployment. An increased mobility in the labour market in terms of both geography and profession could thus compensate for sticky wages. Increased labour market flexibility also implies a better allocation of resources and thus a higher potential growth. Mobility in the labour market plays a major role in the way the labour market functions today and mobility both within and between the member states will probably take on even greater significance if Sweden joins the Eurosystem. How mobile is the Swedish labour market? A high level of mobility in the labour market can be characterised by a good matching between job seekers and job vacancies. The Beveridge Curve, which shows the relationship between unemployment and job vacancies, can be used to illustrate matching in the labour market (see Diagram 5). An increase in the number of vacancies will lead to an increase in the number of jobs and a decline in unemployment.

Both the banks and the supervisors conduct independent assessments of the impact of the stress scenarios on the various business lines of the bank. This approach provides a cross-validation of each bank’s analysis, while at the same time generating results that can be compared across the participating banks. Another important feature of CCAR is that the scenarios and the key aspects of the banks results are made public rather than treated as confidential supervisory information. This transparency is important for supporting market confidence in the banking system. Finally, a critical aspect of the stress testing process is the supervisory review of the capital planning process for each participating bank. This planning process is what reinforces and promotes a proactive stance by management to emerging risks. The structure of bank management compensation also could be designed to provide incentives that reinforce a proactive, forward-looking risk management approach. As I will discuss in a moment, sufficient long-term debt that can be converted to equity is an important element of an effective resolution mechanism for G-SIFIs. While the magnitude of this longterm debt needs to be sufficient to ensure that public funds are not at risk in the event that a resolution of a firm is necessary, making this long-term debt a component of management compensation might also be used to help reduce the likelihood of a default. Long-term debt provided by outside creditors exposed to risk of default can create useful market discipline. However, outside creditors do not have the same information or decision rights as inside management.