borrowing for consumption or in order to invest in shares, which could lead to rapid increased risks. in order to gain a better understanding of whether or not this is the case, the financial supervisory authority has recently commenced an examination of the banks ’ lending to the household sector. excluding repos. there are several reasons why property prices play a central role in any discussion of financial stability. in addition to the fact, as i mentioned earlier, that the credit demand among households is largely governed by the demand for and price level of property, property can also be used as collateral for loans. another reason for monitoring the property sector is that a large part of the banks ’ lending is to property companies. these companies also accounted for a large part of the loan losses during the banking crisis in the early 1990s. property prices have risen recently, and in particular the prices of residential property in metropolitan regions. in contrast to the 1980s, we do not see the same broad price increase across the whole of sweden, as was the case then. likewise, the causes of the rising prices appear to be low interest rates, a high rate of new occupancies and low construction activity rather than speculation. this indicates that there are currently no major risks of a fall in residential property prices. however, there is every cause to observe developments carefully. new construction always takes place with a considerable time lag and experience shows that many projects are not ready and do not come onto the market until after a turning point has occurred, at which point things can quickly deteriorate. with regard to commercial property, the development has been more moderate. again, it is mainly in the metropolitan areas that prices have risen due to high demand. the level of new construction continues to be low and most premises today are already leased before building commences. one way of analysing the extent to which speculative tendencies are inherent in property prices is to place the direct yield in relation to risk - free interest. 2 at the end of the 1980s, the risk - free interest rate was considerably higher than the direct yield on properties, which suggests that people bought properties on the expectation of future price rises and / or significant rent increases. today, the situation is different. direct yield levels appear reasonable in relation to risk - free interest. with regard to apartment buildings in stockholm, the direct yield is lower than the risk - free interest, but at the same time prices are affected by the fact that most property deals are made in connection with converting apartment buildings

capital adequacy ratios or a reserve requirement. nor can an increase in the repo rate be ruled out if financial stability is threatened. however, these are more far - reaching measures and would only be used if the build - up of risk was assessed to constitute an acute problem. the assessment of the situation made by the riksbank and other authorities will always be marred by a large measure of uncertainty, as it is extremely difficult to evaluate how serious the build - up of risk actually is. if drastic measures are to be taken, the assessment must be based on a strong foundation. the development we can see today is, as i mentioned earlier, far from requiring any intervention. the riksbank ’ s assessment is that if the macroeconomic situation should worsen, it will lead to problems for individual households in meeting their payment obligations, but will hardly comprise a serious risk for banks in general and therefore not threaten financial stability either. in this context it is important to mention that the household sector normally accounts for a small percentage of loan losses, even during the banking crises. there is thus no reason in the current situation for the riksbank to resort to special measures to intervene against the build - up of debt currently occurring in the household sector. when discussing the banks ’ loan losses, i have alluded to the risk that households and companies will not be able to pay their loans. loan losses can also arise when the banks cannot meet the obligations among themselves. these risks are usually called counterparty and settlement risks. this type of risk arises in the banks ’ trading and taking positions in the financial markets. as the major swedish banks have extensive commitments to one another and also to foreign banks, problems in one bank can rapidly spread to the others and cause problems throughout the entire financial system. such a problem need not be due to a bank being insolvent ; it may be based on, for example, a failing computer system or similar. the riksbank has on several occasions pointed out that these individual exposures are a growing problem from the point of view of stability. to overcome this problem, the riksbank has begun a review of the regulations, together with the swedish financial supervisory authority. conclusion in the current situation there are great expectations that the future will bring economic growth and good times. “ the new economy ” with a low inflation rate and high levels of employment and growth has gradually crossed the atlantic to reach us. in such times of strong confidence in the future, consumption