Equity and bond financing have gained in importance relative to lending from banks. This diversification of funding is positive for financial stability, since the dominating role of the banks in providing loans is reduced. From the issuers and also the investors’ viewpoint the existence of active markets ensures good competition, leading to efficiency and favourable loan terms. To sum up, the Swedish financial sector contains many different types of institutions and markets and competition is strong. This is fine, because our crisis taught us the problems of being overly reliant on the banking system. The tendency is that the other institutions take markets shares from the banks, for instance in providing channels for saving. But since many of those institutions form part of bank groups, the bank groups’ overall share of the financial system is not reduced to the same extent. Recent developments in the composition and structure of financial services In addition to the developments in the institutions and markets, we are also witnessing new trends in financial services. Mutual funds, money market funds, equity funds etcetera are growing rapidly. Depositors seek higher yields than those offered by bank deposits and they invest in various securities and asset funds. Banks and other asset managers, including hedge funds, make large profits from this business. The effects on financial stability are unclear. On the one hand, the growth of the funds means more liquidity to the equity and securities markets so they can provide more financing of investments hence reducing the reliance on bank lending.

The recent financial upheavals offers the most striking evidence given that there was no disruption to the financial intermediation process, credit flows and transmission mechanism. There are, of course, pockets of risks in individual countries, inflation and property market bubble, to name a few, where different policy instruments could be used. Central to managing these challenges are macro-prudential tools, which have been deployed by Asian countries, to prevent, amongst others, price inflation in the real estate sector. A number of Asian policymakers recently had tightened lending standards by lowering loan-to-value ratio, imposing limits on non-owner-occupied property purchases and increasing transaction costs, as pre-emptive measures to temper speculative property investments and to manage or prevent excessive build-ups in household debt, at a time of fairly low interest rates and abundance of liquidity. At the regional level, safeguards have also been enhanced. Among the lessons drawn from the 1997–98 Asian financial crisis are the importance of early detection of cross-border risks and vulnerabilities, followed by a collectively cohesive and firm action to avert any potential crisis. Over the years, the region has developed an integrated surveillance and crisis management framework through various groupings such as the Executive Meeting of East Asia Pacific (EMEAP) members and the South East Asian Central Banks. For example, the EMEAP surveillance framework focuses closely on regional monetary and financial systems which also connect international financial institutions and member central banks’ reserves management and money market teams through the Dealing Room Network.