The Treasury’s Request for Information, and comments on various SEC and CFTC proposals, have provided thoughtful perspectives on the evolution of Treasury market structure. We have also benefited from consultation with groups such as the Treasury Markets Practices Group (TMPG), which is made up of market professionals committed to supporting the integrity and efficiency of the Treasury market. Continued engagement between the official sector and the public on the Treasury market remains necessary to help to manage its evolution, and to best maintain its efficient function and integrity. Those of you who transact in this market have a crucial perspective on how the Treasury market works and what information is useful for evaluating its function. Engagement between the official and private sectors can also facilitate the development of timely solutions to important issues in the industry. Such efforts include the best practices the TMPG has produced for the Treasury, agency debt and agency MBS markets, 4 and the Group of 30’s recommendations on banking culture and conduct5―an issue I believe the financial industry must continue to work on.6 In fact, it is this type of collaboration―between a wide array of market participants and official agencies―that helps different perspectives come together to create effective practices.7 In addition to engagement with the public, the Joint Member Agencies have continued their interagency collaboration. We have been working together to share information and help shape the most effective path forward for public policy.

Back in 2006 we made the first stress test based on a possible worse development in the Baltic region and noted that if this were to occur, the banks’ resilience would deteriorate and their scope to manage other negative shocks would be reduced. The Riksbank’s Deputy Governor Lars Nyberg informed the board of Finansinspektionen (the Swedish financial supervisory authority) of his fears regarding developments in the Baltic. Mr. Nyberg raised the issue in Finansinspektionen, in the summer of 2008, that the capital adequacy requirement for Swedish-owned banks with operations in the Baltic region should be raised to compensate for the higher risk. However, the board concluded that bank groups’ capital already exceeded the legal minimums on a consolidated, group-wide, basis and thus the parent bank could transfer part of its excess capital to a subsidiary in the Baltic countries, if necessary. Hence, no further measures were required. The Riksbank has regularly informed the Swedish banks of our assessment of risk in the Baltic countries. We have also required that the banks send us supplementary information so we can analyse the potential risks in greater detail. In addition, together with Finansinspektionen we have visited the banks’ subsidiaries and branches in the Baltic countries to study in detail, for instance, their loan management. The Riksbank has for several years now carried out regular crisis management exercises regarding financial crises. In 2007 a crisis management exercise was held together with all of the Nordic and Baltic countries, where the scenario involved a crisis in a cross-border Nordic bank.