investments that run over into next year have risen could therefore be a higher liquidity premium, i. e. a rise in the price that reflects how easily a security can be sold on the market. however, it is important to point out that this type of liquidity problem – a thin market – has no direct connection with the practical liquidity management exercised by the riksbank. the riksbank ’ s role in liquidity management is rather to function as the banks ’ bank. this leads us to a second definition of the concept of liquidity : the opportunities available to financial agents to obtain refinancing without needing to sell assets. uncertainty regarding the future liquidity situation in both senses risks reinforcing the problems. i shall therefore explain and inform you, as far as possible, how the riksbank will manage the supply of liquidity. i shall also give my opinion of the risk of liquidity problems actually arising in practice. in sweden, all major payments between accounts are managed within the rix payment system which links together the riksbank and all major credit institutions. a bank that has a payments deficit always has the option of financing this deficit by borrowing from the riksbank against collateral at the riksbank ’ s lending rate. similarly, a bank that has a surplus always has the right to invest it at the riksbank at the riksbank ’ s deposit rate. these rates at present stand at 4. 25 % and 2. 75 % respectively. however, a bank that has surplus liquidity always gains by lending it to a bank that has a deficit via the market for lending between banks, the interbank market. the bank that lends its surplus funds then receives a higher rate of interest than the riksbank ’ s deposit rate, while at the same time the bank that borrows money pays a lower rate of interest than the riksbank ’ s lending rate. loans on the interbank market occur within the framework of set credit lines so that here no collateral is required. if the financial system as a whole has a liquidity deficit with respect to the riksbank – as a result of the banks ordering banknotes from us – the deficits and surpluses cannot be settled on the interbank market. the banks then have to borrow from the riksbank at an interest rate normally close to the repo rate ; this occurs by means of “ fine tuning ” transactions on the part of the riksbank. as long

of stability in the financial system can have. it led to the riksbank developing an analysis capacity in the field of financial stability. ten years ago the riksbank published the first of its now regular financial stability reports. i can warmly recommend that you read them. the insights from the bank crisis have also led to the riksbank strengthening its crisis organisation and developing forms for cooperation between authorities with regard to managing financial crises. but one important element is missing, namely an effective and coherent regulatory framework for managing institutions in distress. in my opinion, one should have at least some fundamental requirements for such a system. firstly, it should ensure the quickest, most resolute action possible from finansinspektionen when a financial institution suffers problems. secondly, it should be designed so that it is possible to quickly and easily pay the deposit guarantee. thirdly, it should give the state sufficient negotiating power towards existing and presumptive shareholders to prevent taxpayers having to bear the cost when a financial institution has been mismanaged. without well - functioning arrangements and appropriate legislation already in place it may be very difficult to manage future problems in the swedish financial system. and it is not sufficient to merely patch up the gaps in the domestic regulatory framework. the real challenges lie in managing cross - border crises. this is becoming increasingly important, particularly in the light of the banks ’ increasing international operations. it entails challenges that we must tackle jointly on an international level. the regulations must be developed at european level, at least. all of these are difficult issues. one does not need to look far beyond narrow authority objectives and short - sighted national interests to realise that new regulatory frameworks and arrangements for cooperation are required if we are to be able to manage future financial crises. but this appears to be an insight that not everyone reaches at the same time. the picture appears to be most clear to the countries that have come furthest in the question of the integration of the financial sector across national boundaries and which themselves have experience of financial crises. it appears to take other countries longer to realise what new demands arise from the changes in the financial landscape. to achieve this it is necessary to surmount ingrained opinions and other internal resistance. i hope that it will not require a financial crisis of catastrophic proportions before the political maturity and willingness to go further can be achieved on all fronts, both nationally and within the eu. as john f kennedy said, “ the time to repair the roof is when the sun