In July, the repo-rate path was lowered substantially, and without this downward revision to the path, the forecast for inflation would have been even lower. 8  See also my speech “Monetary policy and macroprudential policy”, published on 25 January 2013. 4  BIS central bankers’ speeches  In principle, macroprudential policy tools can reduce the risks linked to household indebtedness in two different ways. First, one can increase the resilience of the financial system through, for instance, higher capital levels in the banks. It reduces the risk of a macroeconomic shock, for instance, a sharp fall in Swedish housing prices, developing into a banking crisis if the banks have more capital to absorb loan losses. Second, one can try to directly slow down growth in household indebtedness through, for instance, different types of limits to how much household are allowed to borrow. However, Sweden has long lacked a framework for macroprudential policy, with clear guidelines as to which authority should take action and what tools they should use. I and several of my colleagues have called for such a framework on many occasions. Now we have this framework in place. I now intend to describe the framework, the measures that have been taken and what remains to be done. The allocation of responsibility for the tools and the establishment of a Financial Stability Council The Government announced last autumn that Finansinspektionen would have the main responsibility for decisions on macroprudential policy measures and that a Financial Stability Council would be established.

Some issues that were taken up at this meeting were tougher capital requirement for Swedish banks and the need for measures to manage households’ high and growing indebtedness.9 Prior to the May meeting, Finansinspektionen published a proposal for how the new European capital adequacy regulations should be applied in Sweden. The measures presented by Finansinspektionen were mostly already known, but the way they are implemented is of course important. This applies in particular to the implementation of a CET 1 capital requirement of 12 per cent for the major Swedish banks, an increase in the risk weight floor for Swedish mortgages to 25 per cent, and the introduction of countercyclical capital buffers. 9  Other macroprudential policy issues discussed include the risks linked to our large and interlinked banking system, which has a high degree of market funding, and various types of measure related to these risks. You can read more about this in the minutes from the meeting in May. See http://www.regeringen.se/sb/d/18209/a/241631. BIS central bankers’ speeches  5  The Council’s meetings are prepared in the drafting committee, which consists of high-level representatives from the various authorities. The drafting committee has held regular meetings during the spring. Each respective authority has worked intensively on various questions, and there has been a substantial exchange of information and analysis between the authorities under the umbrella of the drafting committee. It has been both useful and educational to hear the other authorities’ views on the stability situation and the need for measures.