that economic activity is improving both in the usa and europe. one factor that often contributes to turnarounds in economic activity is companies ’ stockbuilding. when stocks are well - filled and sales decline, companies cut back on production so that it becomes even lower than demand. this destocking then pushes economic activity down to begin with. when the cutback in stocks gradually reaches an end, companies can increase production again without waiting for demand to increase. this gives increased strength to the upturn in activity. it is probable that this is the case right now ; according to several indicators production has begun to increase and a certain amount of optimism is beginning to spread. the total economic policy is expansionary in many countries, which provides additional fuel to the sequence of events. the economic situation in the usa and europe this means that demand on sweden ’ s most important export markets is increasing. the turnaround has been particularly noticeable in the usa. there, both residential construction and household demand have been upheld during the economic slowdown by stimulation policy. in addition, strong productivity within us industry has contributed to improved profit margins. however, the upturn in the usa is expected to be fairly modest, which is mainly because households are expected to increase their low level of savings. ( diagram 1 - savings in the usa ). there is a large savings imbalance in the us economy. sooner or later an adjustment is expected. the weakening of the dollar that we have seen recently may be an indication that the adjustment process has begun. the deficit on the current account amounted to 3. 9 per cent last year. on top of this, households ’ wealth in the form of shares is expected to continue to develop weakly and the rapid price increases on property are expected to subside. the us labour market does not appear likely to improve before the end of the year, which will give a subdued development in real wages. ( diagram 2 - unemployment in the usa, the euro area, germany and france ). at the same time, there is a risk that imbalances in savings in the usa will be adjusted more rapidly and more forcefully with the result that the us economy may lose speed. if the american household sector were to increase its savings and thereby reduce the debt burden more rapidly than is currently predicted, it could lead to a poorer development in consumption than expected and a stagnating economy. the factors that could trigger such a sequence of events include, for instance, us share prices continuing to fall or a decline

susan schmidt bies : regulatory issues remarks by ms susan schmidt bies, member of the board of governors of the us federal reserve system, at the national bankers association annual convention, beverly hills, 12 october 2005. * * * good morning. i would like to thank the national bankers association for inviting me to participate in the annual convention today. i know that regulatory issues are always a critical concern for your members. today, i would like to focus on three regulatory issues that are currently high on the list of both bankers and supervisors : credit risk, particularly in residential and commercial real estate ; the proposed revisions to the current minimum regulatory capital requirements ; and the new disclosures under the home mortgage disclosure act ( hmda ). credit risk first, i would like to talk about credit risk, which has been the leading cause of bank failures over the years and remains the biggest risk for most financial institutions. while credit performance has been very strong lately, and banks of all sizes survived the 2001 recession with only a slight decline in credit quality, banking supervisors have become concerned recently about apparent increased risk - taking in both commercial and residential real estate lending. of course, when property values rise and the loan business grows increasingly competitive, bank supervisors tend to worry that more - aggressive underwriting may set the stage for future deterioration in credit quality. the federal agencies issued joint guidance on home equity lines of credit, or helocs, in may ; we are now working on additional guidance on affordability products in the residential mortgage market and on underwriting practices in the commercial real estate market. residential real estate lending has been a significant focus of supervisory attention this year. average u. s. housing prices have appreciated more than 80 percent since 1997, and were up 13. 4 percent in the second quarter - - the largest year - to - year increase in more than a quarter century. home prices react fundamentally to factors affecting affordability, such as household income growth and mortgage interest rates. but another factor apparently fueling price appreciation has been an increase in speculative buying ; in other words, more property purchases have been made by investors for profit and not for use as their residence. as home prices have risen, lenders have turned to a variety of ways to help their customers buy the homes they want. these include non - traditional, or " affordability, " mortgage products. we've also seen the increased use of helocs as part of purchase financing, supplementing the first lien. at the end of