nils bernstein : financial crises – talks in relation to financial stability in denmark speech by mr nils bernstein, chairman of the board of governors of the national bank of denmark, at the conference to mark the 125th anniversary of the first danish savings bank act – the savings bank act of 1880, copenhagen, 12 september 2006. * * * thank you for inviting me to participate in the celebration of the 125th anniversary of the first danish savings bank act. i have been asked to speak about danmarks nationalbank's tasks in relation to financial stability under the main heading of " financial crises ". financial crises can involve very serious costs. a survey by two economists, hoggarth and saporta, covering 43 financial crises in developed and developing countries shows that the average costs to society amounted to around 15 per cent of gdp. it can also be a costly affair to save one major bank in order to prevent economic collapse. a domestic case in point is the rescue plan to assist landmandsbanken in 1922 - 23. it cost the treasury kr. 40 million, and according to the historian søren mørch that was equivalent to 2 / 3 of the total government budget for social expenditure at the time. so, what are danmarks nationalbank's tasks in relation to financial stability? if we go back to the danmarks nationalbank act from 1936, it states that danmarks nationalbank shall " maintain a safe and secure currency system in this country, and [... ] facilitate and regulate the traffic in money and the extension of credit ". there is thus no doubt that this is our task in relation to financial stability. however, the act does not say how we should shoulder this responsibility. perhaps that is just as well, since the task changes over time. at danmarks nationalbank we have defined financial stability as a state that exists : when the financial system is robust enough for any problems experienced within the sector not to spread and prevent the financial markets from functioning as providers of capital and financial services. in other words, the focus is on the functioning of the financial system. smooth provision of money in our society is a prerequisite to a well - functioning danish economy, but also the basis for effective implementation of a market - oriented monetary policy. it is important to avoid problems in financial enterprises, not only for depositors and shareholders, but also for society at large. problems within one bank tend to spread to other financial institutions – or at any rate to

nils bernstein : recent economic and financial developments in denmark speech by mr nils bernstein, governor of the national bank of denmark, at the annual meeting of the danish bankers association, copenhagen, 30 november 2005. * * * i appreciate the friendly welcome that i have been given by the banking industry and thank you for this invitation to speak today. let me start by stating that i intend to continue the line set by my predecessor in relation to monetary and foreign - exchange policy. this policy has served denmark well. i have been around for so long that i remember the time when we used exchange - rate adjustments actively to solve our structural problems. as we know, this led to double - digit inflation rates and interest rates exceeding 20 per cent. in the end, it became plain to all that this policy was not sustainable. today, there is only seldom focus on the fixed - exchange - rate policy. outside denmark, it is in a way viewed as outdated. nevertheless, this policy has been important for denmark. it has had broad political support and contributed to very low inflation ; in practice so low that ordinary people hardly think about it any longer. in the last 15 years annual price increases have been kept at around 2 per cent on average, and retail prices have remained completely stable in recent years. this safeguard of real wages is to everyone's benefit each and every day. for the corporate sector it is easier to plan ahead when the exchange rate vis - a - vis the euro is stable. the foundation for their investments does not suddenly change due to changes in the exchange rate. companies know that it is primarily up to them to meet future demands by developing products and human resources. the lower rate of inflation is not an isolated danish phenomenon – it is seen worldwide. the increasing integration of asian countries into the global economy dampens prices and wages in the rest of the world. this is also reflected in long - term yields. since the global propensity to invest is lower than is normally the case, and since both central banks and pension funds are currently buying large portfolios of long - term bonds, long - term yields are at the lowest level in the post - war era.. these effects will diminish at some point – we do not know when – but when that does happen, interest rates will rise. * * * denmark's economic policy has had broad political support for a number of years. in fact, the danish " model " is increasingly seen as a role model for other countries