scenario and the stress scenario can also be related to the banks'lending to the baltic states and the rest of eastern europe. these are significant losses, even though they are not as large as those suffered during the swedish bank crisis in the period 19911994 when losses amounted to 13 per cent of lending. the banks'losses will certainly be largely related, in this crisis as in all others, to the situation on the property market. this is because most of the banks'collateral volume consists of property. however, the problems usually relate primarily to commercial properties, not to housing. the households service their interest and amortisation payments in most cases, even though they may sometimes have to negotiate a respite with the bank. neither in sweden nor in the baltic states can households, as they can in the usa, give up the property they have provided as collateral and thus get rid of their debts. not even during the crisis of the 1990s did the households account for a significant part of the banks'losses. however, although loans for housing seldom constitute major problems for the banks, they may mean disaster for individual households that suddenly find it difficult to make the payments. at in the economic literature this ratio is called tobin's q after the nobel prize winner james tobin who, among much else, has studied property prices. if tobin's q is equal to 1, then the cost of buying an existing house is equal to the cost of building a new one. this means that if house prices increase so that the market value is higher than the replacement value, then it pays to build a new house as each invested krona is valued at more then one krona by the market. in several of our large cities, tobin's q is between 1 and 2, or even higher. in many parts of sweden, however, the value is well below 1, which means that it does not pay to build new housing there. present the interest rate is very low. however, our forecast indicates that the riksbank, following a period with a low interest rate, will need to raise the interest rate quite quickly in the period ahead. it is therefore particularly important that the banks check that every household that borrows money can cope with the expected interest rate increases and potential losses of income. the major swedish banks have strengthened their capital bases and in international terms appear to be well capitalised. three of the four major banks have carried out new issues since last autumn and swedbank will soon

encompassing reforms to european capital markets are needed to promote integration, strengthen investment and boost private risk sharing. the united kingdom ’ s departure from the eu reinforces the urgency with which we should pursue policies that address barriers to capital market integration in europe and eliminate opportunities for regulatory arbitrage. more integrated capital markets will support the transmission of the single monetary policy and increase its resilience in periods of stress. advancing cmu should therefore be a top priority for the new european commission and parliament. thank you. 1 see fsb ( 2019 ), fsb report on market fragmentation, 4 june. 2 see houston, j., lin, c. and ma, y. ( 2012 ), “ regulatory arbitrage and international bank flows ”, journal of finance, no 67, pp. 1845 – 1895 ; and ongena, s., popov, a. and udell, g. ( 2013 ), “ ‘ when the cat ’ s away the mice will play ’ : does regulation at home affect bank risk taking abroad? ”, journal of financial economics, no 108, pp. 727 – 750. 3 see cœure, b. ( 2019 ), “ heterogeneity and the ecb ’ s monetary policy ”, speech at the banque de france symposium & 34th suerf colloquium on the occasion of the 20th anniversary of the euro on “ the euro area : staying the course through uncertainties ”, paris, 29 march. 4 see also cœure, b. ( 2018 ), “ the euro area ’ s three lines of defence ”, speech at the conference “ deepening of emu ”, ljubljana, 2 february. 5 see cœure, b. ( 2019 ), “ the euro ’ s global role in a changing world : a monetary policy perspective ”, speech at the council on foreign relations, new york city, 15 february. 7 / 8 bis central bankers'speeches 6 see ecb ( 2016 ), “ trends in the external financing structure of euro area non - financial corporations ”, economic bulletin, issue 5. 7 there is mounting evidence, however, that large banking systems are associated with more systemic risk and lower economic growth, in particular as countries grow richer. see langfield, s. and pagano, m. ( 2016 ), “ bank bias in europe : effects on systemic risk and growth ”, economic policy, vol. 31, no 85, pp. 51 – 106