I will start with the financial markets and international developments, before turning to economic developments and monetary policy in Sweden, with particular attention paid to the development of prices and wages. The functioning of the financial markets continues to improve, but they have not recovered completely The functioning of the financial markets is continuing to improve, both in Sweden and abroad. One sign of this is that various risk premia in the money and credit markets continued to decrease during the second half of 2009. The levels of a number of risk premia now seem to have stabilised within a historically normal interval. Possibilities for various market participants to acquire funding at longer durations through the securities market have improved. Moreover, the Riksbank’s risk survey shows that access to funding without government support has increased. The developments on the financial markets can be illustrated by the so-called TED spread, the difference between the three-month interbank rate and treasury bill rates (Figure 1). However, despite this, the situation has still not completely normalised. There are still markets that have not recovered. There also exists some uncertainty regarding the extent of as-yet unrealised loan losses, particularly in European banks, leading to negative consequences for confidence among financial market agents. Furthermore, it must also be expected that bank lending in the United States and a number of other countries will be restrained for some time to come.

  First, there is information asymmetry between issuers/intermediaries and investors, and investors may be unable to make informed judgments about financial products. BIS central bankers’ speeches  1    Second, there is a principal-agent problem, and intermediaries may not act in the best interests of their clients, be they investors or issuers.   Third, investors are sometimes prone to herding behavior, exaggerating price movements and thereby precipitating market instability.   Fourth, if issuers and intermediaries take on too much risk or liability that they cannot manage, there will be loss of confidence and market instability.   Fifth, critical infrastructure may fail, again leading to market instability. The purpose of regulating capital markets is to safeguard the interests of investors, ensure that risks are kept to an acceptable level, promote efficient price discovery, and maintain confidence in the market. In Singapore, the regulatory framework for capital markets is underpinned by the Securities and Futures Act (SFA) and the Financial Advisers Act (FAA). Consumers who invest in products or deal with entities that are regulated under this framework will enjoy the safeguards provided under these laws. Together, the SFA and FAA cover each of the four components in the capital markets ecosystem. Issuers – dissemination of material information Let me begin with issuers. A key tenet of capital market regulation is that relevant information is transmitted efficiently for price formation and discovery. Like most reputable regulators, MAS imposes stringent rules requiring issuers of securities to disclose and disseminate all material information.