lending to consumers, while the second is a national and international borrowing market. mortgage institutions'borrowing in foreign currency amounted last year to around 20 per cent but lending in foreign currency was negligible. if mortgage institutions on account of their size can obtain better terms in the borrowing market it should, given the competition in the mortgage market, be passed on to consumers. although mortgages are a relatively simple, standardised financial product that should be well suited for selling over national boundaries, such cross - border activities have so far been limited. the relatively small number of participants in the mortgage market both in sweden and other countries can be explained by the fact that these markets are most often highly national in nature with distinctive national characteristics. the sluggishness is due in part to the difficulty in comparing the value of collateral under different national legal systems. this has implied that it is often domestic participants that are in competition in mortgage markets. in europe, national mortgage markets are rather different. this is mainly because factors such as regulations, tax legislation, market structure, bureaucracy and corporate cultures are different in different countries. 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. challenge 1 -

eva srejber : future scenarios for housing finance speech by ms eva srejber, first deputy governor of the sveriges riksbank, at the institute for housing and urban research, ga¤vle, 19 march 2003. * * * introduction housing finance in sweden constitutes a significant part of the swedish financial system. at the beginning of this year, total lending from banks and mortgage institutions amounted to approximately sek 2200 billion, which was fractionally higher than sweden's gdp. mortgage institutions account for just over 50 per cent of this lending, which is why it is vital that financial market players understand the housing finance market, its participants and how it affects and is affected by the swedish economy. for this reason the seminar today can play an important role in advancing knowledge within the field. there are several factors that affect housing finance. these include demand factors, supply factors and structural factors. i will not be mentioning all of these but will instead be focusing on three important factors, namely internationalisation, changed regulations and adjustments of household and corporate balance sheets. i will also be attempting to make a connection to how changes in these three broad areas influence the financing of housing. allow me to begin by outlining the developments of recent years as a point of departure for future prospects. a process of internationalisation has been ongoing for many years now and is driven by several factors. the process is particularly evident in the capital and financial markets. it is usually said that when global production increases by 1 unit, international trade increases by two units and capital movements by four. the increased commercial possibilities that arise as countries become more economically integrated are perhaps the greatest driving force. another force that is driving the internationalisation process is it. in spite of the it crash, there is still considerable potential afforded by information technology. while it companies have suffered badly on the stock market, the use of the technology itself does not represent a " bubble ". it has resulted in better accessibility to both customers and markets as well as to information. for example, it enables mortgage institutions to find buyers of their services in several locations without having a physical presence there. moreover, it reduces costs for administration, given the initial costs, and this ought to lead to better conditions for consumers. yet another driving force is the growth of international organisations such as the eu. with 13 accession countries, the eu could soon be enlarged to include 10 new members, and this is leading toward the creation of a very large and important common capital market.