was a lock - in effect in that currency regulation, which was in force until 1989, had kept our capital inside sweden and contributed to a form of hothouse effect. the banks did not take these factors into account in their risk assessment, or not to a sufficient degree. they then suffered the consequences when the government made some decisions that were desirable in themselves, but which altered conditions drastically. inflation was pushed down, the tax system was reformed and subsidies were erased. developments in the property market were a central component in the banking crisis, as the banks ’ credit - granting meant they were highly exposed to the property sector. property prices rose at an unreasonable rate, regardless of how one measures them. they left the basis for normal pricing, i. e. the net return for the near future and instead reflected pure hopes of what a future buyer of a property might be prepared to pay. when the property bubble burst, prices plummeted, in some cases by over 60 per cent in around 18 months. there were several weaknesses in risk management with regard to property loans : – an incapacity ( or unwillingness ) to see the price trend as a speculation bubble. some people did realise the dangers, but had trouble making themselves heard in the prevailing atmosphere. – the emphasis on the loan collateral, i. e. the property itself, at the cost of an assessment of the borrower ’ s capacity to repay. – the fact that no one saw the substantial concentration of risk through exposures that were ultimately dependent on property price trends. it has been calculated that more than 60 per cent of the banks ’ loan losses during the crisis can be attributed to property loans. – the bank ’ s “ self - delusion ”, which consisted of high - risk loans, i. e. loans against collateral of low priority, being granted by financial companies that were closely linked to the banks. it was among these companies that the financial crisis began. in other words, there was a lack of overall group perspective in the risk management. as the rise and later the fall on the property market played such a central role in the banking crisis, it is worth a special mention. however, it was not the only risk factor the banks should have managed better. there were also inadequacies with regard to credit granting. large loans were made to new customers, new sectors and new geographical areas. this type of lending strategy is not wrong in itself, but it requires that the credit - granter has done

lars nyberg : towards a new european supervisory structure speech by mr lars nyberg, deputy governor of the sveriges riksbank, at sifma's annual meeting, new york, 27 october 2009. * * * ladies and gentlemen let me start by saying that i consider it a great honour to have been invited to speak to you today. we work in different parts of the world, but i think that the crisis that we are now struggling to get out of has shown, for good and bad, that the financial system has brought us closer together than ever before. over the course of last year, there is one sentence that has really burnt into my brain. it was delivered by mervyn king, the governor of the bank of england, who has a great talent for one - liners. he concluded on one occasion, somewhat disillusioned after having dealt with the failure of a number of cross - border institutions, that “ global banks are international in life but national in death ”. and indeed he is right. we have banks and other financial institutions that work all across the globe. but when they get into trouble the instruments for safeguarding financial stability essentially remain fragmented along national borders. this geographical mismatch is something that the regulators will have to deal with, one way or the other. and to put it bluntly, from a policy perspective it basically boils down to a choice between two paths. on the one hand we can choose a path towards fully - integrated international regulatory and supervisory structures, in order to achieve a better match with the global format of the financial system. on the other hand, we can choose a path towards shrinking the financial system back inside national borders, within the perimeters of current regulatory and supervisory arrangements. obviously, reality will not be as black and white as to make a simple choice between these two paths possible. future regulatory reform will probably take some kind of middle road. but if someone asked me for directions my answer would be clear. the benefits of financial globalisation are too great for us to afford to close national borders and to roll back financial integration. a new european supervisory structure – the de larosiere proposals as you all know, the european union chose its path already some time ago. based on the belief that integrated markets contribute to economic growth ( and also to other important policy objectives ) the european union has established a legal and institutional framework for the supervision and regulation of financial markets. however, even though we have come a