Physical distances have lost significance as a result of these developments, which promotes cross-border securities trading. However, cross-border transactions are still unnecessarily dear. As I said, there is reason to hope that transaction costs can be pushed down further as cross-border trading becomes smoother. 2  BIS Review 66/2004  Increased internationalisation Cross-border trade is part of an increasing internationalisation process in the financial markets. Over the past ten years, both non-resident ownership of Swedish securities and trading by non-resident investors in Swedish securities have increased. At the same time, Swedish investors have invested more of their capital abroad. The internationalisation of capital is a development welcomed by the Riksbank. It entails both improved risk spreads and the opportunity for higher earnings. In addition, it could lead to better competition and more efficient use of capital in the economy and thereby to greater welfare. This development also makes greater demands on the Swedish securities markets. If we diverge too much from international practice with regard to norms and regulations, particularly tax regulations, it will reduce the economic benefits we obtain from the internationalisation of the markets. However, it does not mean that we should stop thinking about designing regulations. I shall return to this later. Altered ownership structure Another trend that affects the securities markets is the increased institutional ownership. When an increasing share of financial savings in the economy is through mutual funds and large financial institutions, securities trading is also affected.

This highlighted the urgency of working toward a solution over the weekend, ideally a solution that would definitively address the prospect of default by Bear. Bear approached several major financial institutions, beginning on March 13. Those discussions intensified on Friday and Saturday. Bear’s management provided us with periodic progress reports about a possible merger. Although several different institutions expressed interest in acquiring all or part of Bear, it was clear that the size of Bear, the apparent risk in its balance sheet, and the limited amount of time available for a possible acquirer to conduct due diligence compounded the difficulty. Ultimately, only JPMorgan Chase was willing to consider an offer of a binding commitment to acquire the firm and to stand behind Bear’s substantial short-term obligations. As JPMorgan Chase and other institutions conducted due diligence, my colleagues in New York and Washington continued to examine ways to contain the effects of a default by Bear. As part of these discussions, we began to design a new facility that would build on other liquidity initiatives taken by the Federal Reserve System, and provide a more powerful form of liquidity to major financial institutions. Following the announcement on March 11 of the Term Securities Lending Facility, which allowed primary dealers to pledge a wider range of collateral in order to borrow Treasury  BIS Review 39/2008  5  securities, we had consulted with market participants on how to structure the auctions to maximize their potential benefits to market functioning. Those discussions yielded a number of helpful suggestions.