Moreover, raising new private capital in this environment is a very tall order; while the option of public capital injection very costly for shareholders and tax payers. Therefore, it is imperative that banks need to be even more vigilant in managing not only their asset quality but also their internal capital, funding, expenditure including executive pay, and dividend policy. Looking at banks in the Asian region, such as Thailand, despite rapid development of capital market in recent years, the core banking businesses remain traditional; largely deposit taking and loan extension. Meanwhile, treasury operation remains relative small. Moreover, with the financial market predominantly bank-based rather than market-based, there tends to be less risk and complication arising from the originate-to-distribute models of securitisation. Nevertheless, in the past few years, banks have expanded business scope, operating as universal banks or financial conglomerate, with securities and insurance arms. Therefore, organisational structure and risk profile, of even the more traditional banks, have become much more complex. This, in turn, demands that bank’s risk management, Board’s oversight, and supervisory framework can match the increasing complexity and ensure adequacy of capital and risk management system on a consolidated basis. On market risk, some banks in Asia and Pacific countries have been exposed to the subprime related assets such as CDOs as well as assets of failed institutions. The losses so far have been limited to foreign assets and are addressed by private and government assistance. On hindsight, this crisis highlights the fact that it is easy to overestimate one’s risk management ability.

Lars Heikensten: Monetary policy and the economic situation Speech by Mr Lars Heikensten, Governor of the Sveriges Riksbank, at Handelsbanken, Karlstad, 26 January 2004. *  *  *  It is nice to meet a group of representatives of the business and social community in this way in Värmland. I would therefore like to begin by thanking the organisers of today’s lunch meeting. When I took office as Riksbank Governor last year I decided that I would leave Stockholm shortly before each monetary policy meeting and visit different parts of the country; both to learn more about developments in various parts of Sweden and to explain the Riksbank’s work and actions. My visit to Karlstad today is the first of these trips. During the morning, I visited the university and spoke about how the Riksbank works. Later this afternoon I will first be visiting coffee manufacturer Löfbergs Lila and thereafter be discussing labour market conditions at the county administrative board. We at the Riksbank make these visits in order to meet the Swedish people and increase understanding for our policy, something that is particularly important today given our statutory independence. In Sweden we have an inflation target, which the Riksbank has defined as 2 per cent with a tolerance interval of plus/minus one percentage point. As I see it, our policy of inflation targeting has worked well. We managed to gain respect for our conduct of monetary policy a lot quicker than many other countries.