##lnerabilities that justify complementing the internationally - agreed frameworks. the high and growing indebtedness of the swedish households poses further risks to the financial system. all - in - all, this justifies sweden taking action sooner and having stricter regulations in certain respects. on the basis of several of these factors, the riksbank has recommended, together with finansinspektionen and the ministry of finance, that from 1 january next year the major swedish banks should have cet 1 capital ratios of at least 12 per cent. this is significantly higher than the requirement in the basel iii framework. several other countries with large banking systems have for similar reasons introduced or are discussing higher capital requirements for their banks. two closely - related examples are switzerland and the united kingdom. another area where we need stricter requirements for swedish banks is the area of shortterm liquidity risk. at present, the largest swedish institutions are required to have a liquidity coverage ratio of at least 100 per cent. the lcr requirement applies in total for all currencies together and for operations in euros and us dollars separately. however, separate quantitative requirements for individual currencies are not included as a quantitative minimum requirement in the basel iii framework. in my view, however, it is very important that the banks maintain a high level of resilience to liquidity stress by holding liquidity buffers in the currencies in which they have their largest cash flows. an lcr requirement per currency ensures that this is the case in euros and us dollars. it is also reasonable that the banks report their lcrs in swedish kronor to provide a more complete picture of their liquidity risks. the riksbank therefore recommends the major banks to publish their lcrs in swedish kronor. 2 unfortunately, only one bank, swedbank, meets this recommendation today. there are good reasons for introducing some form of quantitative requirement for lcrs in swedish kronor. the banks have low liquidity buffers in swedish kronor at present, which means that they would have to rely on foreign markets and swap markets if they were to need liquidity in swedish kronor. the riksbank is of course always able to lend swedish kronor, but in my view it is not reasonable that the banks can take liquidity risks on the assumption that the riksbank will always be at hand if things do not go according to plan. the riksbank should,

, which was first published in october 1993. at that time the measure was known as und1 and as now it was adjusted for the direct effects of indirect taxes and subsidies and mortgage interest expenditure. at that time the krona had recently depreciated heavily and this had an impact in the form of a one - off increase in import prices. the measure therefore initially made adjustments for changes in import prices as well. the reason given then for adjusting for interest costs was that the financial turbulence in autumn 1992 had led to temporary effects on inflation. some years later other reasons made it important to adjust for interest costs. during the second half of the 1990s the riksbank cut the repo rate substantially, from almost 9 to below 3 per cent. at the same time, the interest rate on a 5 - year mortgage fell from just over 11 to around 5 per cent. this led to interest expenditure for home - owners declining substantially and pushing down cpi inflation. with the aid of the cpix measure the riksbank could show that the low inflation was largely the result of its own earlier interest rate cuts. demanding that the interest rate should be cut further because inflation was so low, as some people did, was thus unreasonable. it would mean that monetary policy was “ chasing its own tail ”, as it was expressed then. strict two - year rule and the cpix the cpix measure was particularly important during the period when the riksbank communicated its policy with the aid of a simple policy rule. this rule meant that if the forecast for inflation deviated from the target one to two years ahead, given an unchanged repo rate, the interest rate would be changed. from the point of view of communication the rule worked well for a long time. but the focus on the inflation forecast exactly two years ahead which this in practice led to was not without problems. the cpi forecast often deviated from the inflation target two years ahead, not least because of the direct effects on household interest expenditure of our own policy. but as the effects were expected to subside just beyond the two - year horizon, there was no reason to change the interest rate. it therefore seemed natural to begin basing monetary policy on forecasts of cpix inflation, which disregards interest expenditure. if the cpix was close to the target two years ahead, this was an indication that the interest rate did not need to be changed, even if the cpi deviated from 2 per cent. to put it simply, one