stockholm rose by 14 per cent on an annual rate, and prices in goteborg rose by 20 per cent. prices were steadier in malmo, with a rise of 5 per cent on an annual rate during the first quarter. at the same time as prices have risen substantially in recent years, rents and demand for office space have not increased appreciably. while employment in the services sector has increased in recent years, this does not seem to have had an impact on the demand for office space. as both demand for premises and rent levels have remained relatively unchanged, it is therefore likely that the price upturns in recent years are due more to a decline in investors ’ required rate of return. the required rate of return depends partly on the yields on long - term government bonds, as these function as a risk - free alternative to investment in property. the required rate of return also depends on how much investors demand in compensation for investing in higher risk assets, such as property, that is, what risk premium they demand. interest on government bonds rose in total during the first quarter of the year. all other things being equal, t his should raise the required rate of return. however, over the past year the required rate of return has fallen. this could either be due to investors expecting rents to rise in future, or that they have demanded a lower risk premium. a lower risk premium is in itself not surprising. the risk premiums on a number of different assets have fallen around the world in recent years. but as for a number of other markets, there may be reason to wonder whether the low risk premium on office premises is reasonable. however, one must remember that property companies have had very strong profit growth in recent years. unlike the crisis years, property companies currently have much better margins to manage some dampening of prices. i therefore do not believe at present that developments in the commercial property market comprise any threat to financial stability. but as it was the exaggerated commercial property prices that contributed to the banks ’ major losses in the 1990s, i consider that we should monitor future developments in these prices a little extra closely. in recent years foreign investors have become more interested in the swedish commercial property market. in 2006 foreign investors accounted for just over 40 per cent of all investments in the market. in terms of financial stability, this development has both advantages and disadvantages. more foreign participants mean that the risks are spread to different types of investor, which is positive. it also contributes to making the

. first, greater clarity on liabilities should encourage more appropriate matching with assets in a way that was absent in the run - up to the crisis – some assets suit a deposit contract, some do not. second, resolving failed banks without the use of public money depends on a very strong delineation of bank liabilities to make clear what can be bailed in. this is a key to unlocking the answer to the too big to fail problem. third, as the bank of england announced in december, we are now in a position to clarify the expected steady state regime for bank capital and because we can distinguish going concern capital bis central bankers ’ speeches and thus loss absorbency from resolution or gone concern absorbency, we can put a lower number on the former. clarity is therefore a good thing when it comes to balance sheets. put like that, the wonder is that so much was unclear in the previous system. and, finally, the same principle holds for assets under management. make sure investors know the characteristics of the assets they hold and that they are not promised access to their investment on terms or with a promise ( explicit or implicit ) that is out of line with what financial markets could deliver. thank you. bis central bankers ’ speeches