effects on the real economy swedish citizens and consumers crises cost society enormous amounts gdp growth in sweden, 1960 - 2010, sek billion source : the riksbank bis central bankers ’ speeches the real effects have a high social and economic price unemployment in sweden, 1985 - 2000, percentage of labour force source : the riksbank problems in the banking sector impact the country ’ s citizens in many ways via the real economy problems in the banking sector directly against bank customers via the public sector weaker economic development deposit guarantee need for capital injections increased uncertainty new banking relationships higher unemployment lower wages lower pensions higher taxes deterioration of public welfare higher interest rates new terms poorer economy for households bis central bankers ’ speeches a financial crisis will ultimately threaten basic social functions the financial system is central in the society household who can pay whom in a serious crisis? household ’ s bank grocery shop grocery shop ’ s bank? employer ’ s bank employer other financial market participants – in and outside sweden the financial crisis of 2007 - 2009 impacted borrowers in other countries hard source : federal reserve boston bis central bankers ’ speeches problems in the housing sector could have severe consequences for households distribution of new mortgage loans by amortisation period, per cent 0 - 10 10 - 30 30 - 40 40 - 50 > 50 none amortisation period, years source : finansinspektionen the european commission is concerned about developments in sweden from alert mechanism report 2011 / 2012 ” despite overall good macroeconomic performance some countries display developments in assets markets, including in particular housing, and a continuous build - up of indebtedness in the private sector, which also warrant further analysis ” the european commission would like a closer examination of swedish households ’ indebtedness sweden ’ s mandate to handle the situation depends on how the basel iii regulations are implemented in the eu source : european commission bis central bankers ’ speeches the riksbank has an important role to play in the prevention of financial crises the riksbank is responsible for means of payment and can provide liquidity the riksbank monitors the financial sector with a systemic perspective but the riksbank lacks sharp preventive tools the riksbank represents sweden in international regulatory cooperation preventing financial crises is of great importance for swedish households swedish households need functioning financial services and protection from financial crises and their effects citizens have the right to expect that authorities will prevent and manage financial crises to the best of their ability authorities need the right tools to prevent and manage crises bis central bankers ’ speeches references european commission ( 2012 ) :

the management of the external sector with the government. the power for this is derived from the foreign exchange management act ( fema ), 1999 which is a successor to the earlier foreign exchange regulation act ( fera ), 1973. of all the different sectors of the economy, possibly the most extensive reforms have taken place in the external sector. prior to 1991, india was one of the most closed economies in the world, and controls on foreign exchange transactions were near total. today the situation is completely different. now there are virtually no restrictions on current account transactions. foreign exchange can easily be obtained for business expenses, travel, tourism, studies abroad, medical treatment, etc. in the pre - reform era, a licence had to be obtained for almost bis central bankers ’ speeches every type of import, and the import duties were prohibitive. today, there are no quantitative restrictions and duties have been substantially slashed. our liberalization has extended to the capital sector too. india ’ s policy on foreign direct investment ( fdi ) is quite liberal and transparent. we allow foreign investment in almost all sectors except for a small negative list. today, every resident indian is allowed to take out up to $ 200, 000 per financial year for any permitted current or capital account transaction under the liberalized remittance scheme. corporates can invest abroad up to 400 per cent of their net worth in joint ventures and wholly owned subsidiaries. india runs a current account deficit which means that we spend more foreign money on import of goods and services than we earn on exporting them. the gap between our spending and our earning has to be met by capital flows – that is by foreign savings. development economics says that it is alright for a developing economy to run a current account deficit provided the foreign savings – capital flows – that bridge the deficit are used productively. capital flows come in various forms, and can be classified as debt or equity flows or short term or long term flows. in india, we have a preference for non - debt flows such as foreign equity over debt flows, and we have a preference for long - term flows such as foreign direct investment over short - term flows such as foreign institutional investment. an important problem, indeed one that is very prominent on the current international agenda, is the surge of capital flows into emerging market economies ( emes ). as i said earlier, emes surely need capital flows for their investment needs. but if they get more of the flows than they can absorb, it hurts the