Finansinspektionen has also already placed demands for how the banks should manage their liquidity risks, among other means by requiring specific buffers in euros and US dollars. As I am sure you know, the Riksbank’s opinion is that the banks also need buffers in other important currencies that they use in their operations. Even if the banks were to have strong self-insurance, it is not certain that this would be enough in a crisis situation. Then the Riksbank can act as “lender of last resort”, that is, assist the banks with liquidity if they experience difficulties obtaining market funding. The Riksbank can in principle create any amount of liquidity in Swedish krona. Swedish krona can normally be exchanged for foreign currency. So what is the problem? Well, it is the word “normally” that is the snag. In a financial crisis, there is very little that functions “normally”. This is the whole purport of the word “crisis”. In other words, it is far from certain that the foreign  6 [14]  exchange markets will function in a crisis. And this is when it is most urgent and most expensive to acquire foreign currency. Swap agreements, not just a phone call During the financial crisis, an acute shortage of US dollars arose in the banks. In September 2008, the Riksbank was able to establish, together with some other central banks, temporary currency loans – swap agreements 7 – with the US central bank, the Federal Reserve.

This is not only my opinion and the opinion of the Riksbank, it is also shared by the International Monetary Fund. In its Article IV review of Sweden's economy in 2016, the IMF concluded that the foreign currency reserve should not be smaller than it is now. The European Central Bank, ECB, has also recently issued an opinion recommending that Sweden should not reduce the size of its foreign currency reserve below the current level. 10  The foreign currency reserve should be paid for by the banks The cost – or insurance premium – of having a liquidity insurance in the form of a foreign currency reserve is at present charged to the Riksbank’s earnings and central government finances and is calculated at around SEK 400-500 million a year. This is, of course, a lot of money, but calculated per inhabitant per year the insurance premium is only SEK 40-50. This corresponds to around two cups of coffee or half of a cinema ticket. Moreover, it is actually a cost that could well be transferred to the banks, which are the primary beneficiaries of such an insurance. One could say – to take it to an extreme – that tax-payers currently subsidise the banks by almost half a billion a 9 The Government’s draft referral to the Council on Legislation (in Swedish):  http://www.regeringen.se/494cc9/contentassets/c34c52bc62904b2984784e2b94f1e6aa/riksbankensfinansiella-oberoende-och-balansrakning-utkast-till-lagradsremiss The Riksbank’s consultation response: http://www.riksbank.se/en/Press-and-published/PressReleases/2017/Important-to-have-sufficient-foreign-currency-reserve-rapidly-available-in-a-crisis/ Other public authorities’ consultation responses regarding the foreign currency reserve can be found here (in Swedish): http://www.fi.se/sv/publicerat/remissvar/2017/remissvar-pa-utkast-till-lagradsremiss-riksbankensfinansiella-oberoende-och-balansrakning/ and https://www.riksgalden.se/globalassets/dokument_sve/om_riksgalden/remissvar/2017/riksbankens-finansiellaoberoende-och-balansraekning-remissvar.pdf 10 ECB (2017).