The Riksbank shares the responsibility for preventing financial crises with the Government and other authorities, in particular Finansinspektionen and the Swedish National Debt Office. The Riksbank’s responsibility in this area is expressed in the legislation as the task of “promoting a safe and efficient payments system”. More specific details are not given. Goodfriend and King discussed this issue in their evaluation of the Riksbank that was presented at the beginning of this year. 14 In their opinion, the Riksbank’s mandate should include financial stability and this should be clarified in the Sveriges Riksbank Act. I agree and welcome a discussion on how the responsibility should be formulated. An important question is what formal role the Riksbank should have as regards preventive work aimed at reducing risks and vulnerabilities in the financial system, including within the policy area of macroprudential policy, which focuses on preventing and mitigating systemic risks. Identifying systemic risks is nothing new in the world of central banking. What is new is the emergence of macroprudential policy as a policy area. This means that, in addition to the task of identifying systemic risks, clear mandates must also be defined for those who are to be responsible for macroprudential policy. In addition, a tool-box of different measures that can be taken to reduce systemic risks must also be developed. Neither are many of the tools and measures currently being discussed entirely new, but were already in central bank arsenals prior to the major wave of deregulations during the 1980s.

In addition, with enhanced risk management capabilities, banking institutions will be better equipped to price products and services more competitively while ensuring that their risk exposures remained within manageable levels. Better insights into their risk profile also facilitate in their formulation of business strategies and enable the optimal use of their capital. In this context, banking institutions must be prepared to beef up their financial strength and capital level during the current favorable economic environment so that they could weather vulnerability during downturns and crisis situations. 4  BIS Review 32/2005  Ladies and Gentlemen, While the responsibility for strengthening competitiveness rest with the banking institutions, Bank Negara Malaysia plays an important role in spearheading the development of the banking sector. In realising the vision of a progressive and dynamic banking system, Bank Negara's policy initiatives aim at providing a more conducive environment that encourages innovation and competition, while maintaining the safety and soundness of our banking sector. In line with this, Bank Negara Malaysia will ensure its prudential framework is adaptable to changing market circumstances and business practices, and does not contain features that might inhibit banking institutions from upgrading their capabilities or delaying their response to changes. Our regulatory approach has shifted away from prescribing detailed rules towards "principle-based" regulations. There is now greater focus on providing "incentive compatible" parameters that encourage banking institutions to conduct their businesses prudently, whilst allowing them the flexibility to develop strategies within the broad principles.