banks to acquire mortgage institutions. this laid the foundation for the major banking groups we have now. initially, the mortgage institutions continued to fund their operations with housing bonds, and from 2007 these were gradually replaced by what are known as covered bonds. covered bonds have mortgages as collateral for their funding and according to the regulations governing the handling of these bonds, mortgages with an excessively high loan - to - value ratio may not be used as collateral. as the covered bonds are regarded as more secure by the market, the banks had the incentive to change over to this form of funding. moreover, see, for instance, chistelis, georgarakos and haliassos ( 2013 ), differences in portfolios across countries : economic environment versus households characteristics. the review of economics and statistics, march 2013, 95 ( 1 ), pp. 220 – 236. another explanation for the banks ’ extensive market funding is that the swedish occupational pension system means that swedish households themselves do not save with the banks, which means that the banks must find funding in the markets. the pension funds in their turn invest substantially abroad, which means that the banks must partly fund themselves abroad. bis central bankers ’ speeches many banks in europe had already introduced similar covered bonds. however, mortgage institutions were not allowed to fund the entire stock of mortgages with these bonds. to cover the remaining amount, the mortgage institutions instead began to borrow from their parent banks, which in turn to a great extent obtained funding on the financial markets. this meant that the link between the mortgage institutions, the banks and the financial markets were further reinforced, and this also increased the complexity of the funding of housing. during the 2000s, the banks ’ market funding in foreign currencies also increased. part of this borrowing is used to finance mortgages in swedish krona and the foreign currency therefore needs to be converted into krona on the fx market. i do not intend to go into this in depth ; merely to observe that this has further increased the complexity of the swedish financial system in that the number of intermediaries has increased. at the same time, the banks have become dependent on the fx market functioning smoothly. households ’ high indebtedness could jeopardise the banks ’ funding opportunities swedish household debt has been rising in line with the increase in housing prices since the mid - 1990s. the fact that households today are so heavily indebted means, for instance, that they are sensitive to changes in their personal finances and to

the board ’ s website at www. federalreserve. gov / events / conferences / 2011 / rsr / default. htm. see paul calem, francisco covas, and jason wu ( 2011 ), “ the impact of a liquidity shock on bank lending : the case of the 2007 collapse of the private - label rmbs market ( pdf ), ” august 15 ; and andrew cohen ( 2011 ), “ rating shopping in the cmbs market ( pdf ), ” september. see viral acharya ( 2011 ), “ governments as shadow banks : the looming threat to financial stability ( pdf ), ” september ; franklin allen and elena carletti ( 2011 ), “ systemic risk from real estate and macro - prudential regulation ( pdf ), ” august 22 ; xavier freixas and jean - charles rochet ( 2011 ), “ taming sifis, ” september 7 ; and joon - ho hahm, hyun song shin, and kwanho shin ( 2011 ), “ non - core bank liabilities and financial vulnerability ( pdf ), ” august 27. for papers related to capital requirements, see ian christensen, cesaire meh, and kevin moran ( 2011 ), “ leverage regulation and macroeconomic dynamics ( pdf ), ” august 18 ; and enrico perotti, lev ratnovski, and razvan vlahu ( 2011 ), “ capital regulation and tail risk ( pdf ), ” july. for a paper related to risk retention rules for securitization, see john kiff and michael kisser ( 2011 ), “ a shot at regulating securitization ( pdf ), ” september 9. bis central bankers ’ speeches