Moreover, it means that the costs of entry are high for new participants, particularly for foreign competitors, not least because of marketing. The effect of distinctive national features on the market has also been apparent to Swedish participants that have set up businesses abroad and then operated under other regulatory frameworks and according to other practices. Another limiting factor is the fact that as long as Sweden remains outside the euro area, foreign companies that wish to enter the Swedish mortgage market will have to provide loans in Swedish kronor, as Swedish borrowers do not generally want to expose themselves to exchange rate risk. However, should Sweden join the euro, the interest rates offered by lenders in the different countries of the euro area will become directly comparable. With a single currency, it would be easier for borrowers to judge which institution in the euro area offers the best terms. Swedish borrowers would be able to take loans in euro without exposing themselves to currency risk, and the availability of potential lenders would increase. Differences in regulations and taxation systems, however, would continue to constitute a limitation on increased competition. Challenges for Swedish housing finance ahead of the future Looking toward the years ahead, developments in the housing finance market will be driven by a number of powerful forces: continued balance sheet adjustments, the effects of the continued internationalisation process in Europe and new rules for financial institutions. I shall concentrate on these three challenges.

The growing capital market in euro is becoming increasingly important as a source of financing for Swedish companies, so far primarily for major enterprises and institutions that can manage currency risk. This would provide a larger financing base without currency risk for Swedish companies if we were to introduce the euro in Sweden. It is not just the interest rate markets that have been affected by European integration and the general trend toward internationalisation. The changed market conditions have also affected competition and thereby the structure among market players. Financial activities tend to benefit considerably from large-scale operation. High, fixed costs in the form of training, highly skilled staff, large and resource-intensive computer and analysis systems, and information retrieval mean that unit costs fall as turnover volume increases. One way to attain a sufficiently high turnover volume for fixed costs or to limit the disadvantages involved in large-scale operation could be a strong specialisation of activities. The trend we can see today in individual countries, of banks merging to create larger entities, is a result of an attempt to reduce unit costs and thereby increase profit margins through economies of scale. However, very few banks have so far established operations on a large scale in other countries. Most institutions have the majority of their activities and earnings in their home country. The consolidation that has occurred through cross-border mergers and acquisitions has generally not yet led to a radically different market in the EU for the services traditionally provided by banks to households and small companies.