the banks will therefore not need to reduce their lending to the same extent, which would otherwise reinforce the downturn. here, it may be worth emphasising that the credit cycle does not typically coincide with the business cycle ( the fluctuations of which we, at the riksbank, attempt to dampen with the use of monetary policy ), but has a longer course. but once again, the primary purpose of the countercyclical capital buffers is to increase the resilience of the financial system by ensuring that the banks have enough capital in periods when risks are accumulating. negotiations are underway on the eu level regarding the implementation of basel iii, and thus also the countercyclical buffer. who will be responsible for the instrument – an existing authority, several authorities together or a newly - formed authority – is an open question in sweden and many other countries. the swedish government has appointed a commission to investigate the implementation of countercyclical capital buffers in sweden. 9 … but the basel regulations do not capture all risks in sweden the basel iii accord will also place requirements on the banks ’ leverage ratio, which is the minimum amount of capital that the banks must retain regardless of the risk class of the assets. 10 the fact that a requirement for the leverage ratio sets a ceiling for indebtedness in the banking system is very attractive. it guarantees a kind of minimum level for resilience. at the same time, the banks will no longer have to rely upon the risk weights correctly reflecting the actual risk in lending. my assessment is that leverage ratios and countercyclical buffers are good instruments for the management of systemic risks which will help us strengthen the financial system when the need arises. but they have their limitations. both of these instruments are indiscriminate and it will be difficult to determine when it will be appropriate to increase or decrease the countercyclical capital buffers. if we are to be able to combat risks efficiently, we will also need instruments that can be directed towards the areas in which the problems exist. variable risk weighting – a usable instrument one instrument that a growing group of countries is choosing to introduce is variable risk weighting for lending. 11 these can be seen as a complement to countercyclical capital buffers and are aimed at counteracting the build - up of risks in lending to specific sectors. varying risk weighting is thus a more focused instrument than countercyclical capital buffers. this work is being

a macroprudential policy instrument. these can certainly be focused on all categories of borrower in society, but, in the countries in which they have so far been applied, they have been directed at households and their indebtedness. 12 these instruments have usually been formulated as a limit on the amount of the loan in relation to the household ’ s income or the value of the household ’ s assets that form the collateral for the loan. there is no internationally harmonised definition of these instruments, allowing them to be defined differently as regards loan amount, income and value of underlying collateral. in sweden, finansinspektionen issued a recommendation almost two years ago regarding a limit on how much borrowers may borrow, the so - called mortgage ceiling. according to this, household loans should not exceed 85 per cent of the property ’ s market value when the loan is granted. lending above this threshold is still possible, but should be granted without residential collateral and therefore at higher interest rates. even if finansinspektionen ’ s justification for the mortgage ceiling was to protect consumers, the measure can also be used for macroprudential supervision. from a stability perspective, the credit risks in the banks ’ credit portfolios could be reduced if the rule contributes towards reducing the economic vulnerability of households. the loan ceiling may also contribute towards more stable price formation on the housing market, as the rules influence how much money households are willing to put into purchasing housing. if this counteracts excessive price variations on the housing market and the unsustainable accumulation of debt among households, it will also likewise contribute towards reducing the risk of loan losses in the banking system. see, for example lim, c., et al., ( 2011 ), “ macroprudential policy : what instruments and how to use them? lessons from country experiences ”, imf working paper, 11 / 238. bis central bankers ’ speeches a loan ceiling based on income would have largely the same characteristics as one based on the value of housing, but may have certain advantages. if debts are not linked to price movements on the housing markets, this avoids the problem of price increases and indebtedness reciprocally being pushed upwards in a rising spiral. effectively combating future financial crises will require flexibility an efficient financial system is a prerequisite for a modern economy. a shock leading to the breakdown of any of the financial system ’ s functions can have major economic costs in the form of sharp