bank to reduce risks in foreign exchange trading. the banks and public authorities currently have a much better grasp of the risks in the financial sector and how these can be managed and reduced – this is probably part of the explanation why we have seen a clear decline in the number of bank crises in recent years. at the same time, the developments i have outlined above, including the creation of large financial groups and payment centres, lead to new types of risk that need to be managed. the consolidation on the part of the market must therefore be met with increased coordination on the part of regulations and public authorities. we do not need more regulation and supervision ; the challenge is that regulation and supervision must always be adapted to development and, as now, aimed at detecting and remedying the most critical vulnerabilities in the financial system. this sounds obvious, but it is not so easy to achieve in practice. commercial developments are rapid, while it always takes a little longer to adapt laws and public authorities, particularly if regulation and supervision are at the same time to be harmonised across national borders. from my work in various international forums, i know that the danish authorities in general share my views on the importance of the issues i have mentioned today and i look forward to continued cooperation with you in various ways to prevent financial crises and thus avoid having to manage them together.

perhaps even mainly, because they have potential implications for the riksbank ’ s second objective – price stability. if house prices fall, households ’ willingness to consume goods and services – their demand – declines. if prices drop at a measured rate over a long period it does not have to be a problem. if the price decline occurs rapidly there is reason for greater vigilance. how then do house prices affect the activity level in the economy? this can happen through various channels. one such channel – which i only intend to mention in passing – is housing construction. the higher house prices are, the more profitable it is to build them, all other things being equal. in all likelihood, the fast upswing in prices has contributed to the fact that housing construction now appears to have picked up in earnest, although the low level of interest rates that has kept down financing costs has probably also played an important role. changes in house prices also affect household consumption by altering the size of households ’ wealth. since household consumption comprises about half of total economic demand the potential effects on inflation can be considerable. the impact on consumption of an increase in wealth can come about in different ways. one is that households feel richer and therefore become more inclined to consume. in addition, the size of their wealth can affect their ability to obtain loans. the larger the collateral a household can put up for its loans, the greater its chances to borrow and thus to consume. when the value of the home owned by a household rises, it also creates the possibility to mortgage the home further, e. g. to build an extension or renovate and further raise the value of the home or to consume other goods. another effect is that a higher valuation enables a household to refinance its second mortgage as part of its first mortgage and thereby reduce the interest costs of the debt. historically, there has been an almost surprisingly strong relationship between changes in the value of households ’ real wealth – houses and tenant - owned apartments – and how large a proportion of their incomes that households choose to consume, the so - called consumption ratio. when wealth has risen, consumption also has done so. in the current decade, though, this relationship seems to have been weaker than in previous decades. the exact causes of this are not entirely clear. a number of hypotheses exist. 1 one is that the sharp equity market decline that began in 2000 may have played a part. households ’ financial assets decreased substantially in value at that time. this may