. the idea, of course, is to exit the bank as soon as this is possible in an economically justifiable manner. a good restructuring plan turns the odds of such an exit in your favour. that is the third lesson. profit maximisation should be the guiding principle in this restructuring process. maximising profits, in turn, hinges on banking skills. so make sure the restructured bank is run by the most skilled professional bankers you can find! in some cases, to return to profitability and prosperity, the restructured bank will need to get rid of its most troubled assets. in the swedish crisis of the 1990s, this was achieved by splitting the most troubled banks into a good part that we sold, and a bad part that we wound down and sold separately. if you opt for this solution, make sure that an independent asset management company, staffed with people with the right experience in handling troubled assets, runs the bad bank. profit maximisation also implies ensuring that the restructured bank is out of the reach of political influence. this is important for two reasons. depositors and lenders of the bank may exert influence on politicians to run the bank in a manner that is favourable to them. this may of course compromise profit maximization. also, public servants are typically not trained to manage banks. but apart from lacking the specific skills, there is also an obvious risk that running a bank will interfere with the regular operations of the public authorities, although these are probably not regular at all during a banking crisis. if you get these things right, you may secure that upside that i just mentioned. and you may recoup some ( or perhaps even all ) of the costs of the banking crisis. for instance, in the swedish banking crisis of the 1990s, the government capital injections into the distressed banks rendered healthy profits for the taxpayers when ( some of ) that equity was eventually sold. also, the independent asset management company managed to limit the losses on the troubled assets they took over from the swedish banks. something similar seems to be occurring right now in the uk. the british also applied the good bank - bad bank model in the restructuring of northern rock. while the good part of that bank is still in the red, the bad part looks likely to return to making a profit already this year! so even though it is very difficult to assess all the direct and indirect effects of one particular solution in relation to another, those examples at least indicate that you can achieve better outcomes by acting

effective crisis management. i am going to give you some examples of what i see as good crisis management, but i will also show the detrimental outcome that may result when these core principles are violated. in addition, i will also touch upon how regulation may facilitate – but sometimes also hinder – the application of these crisis management principles. one of the lessons i have learnt is that resolving a financial crisis takes time. it is a messy process and it costs a lot of money. therefore, to handle a crisis effectively and minimise its detrimental effects on the overall economy, you need to stick to three basic principles : firstly, cooperate ; secondly, act swiftly ; and thirdly, be economically savvy. this holds true regardless of what caused the crisis, and regardless of the solution. let me explain to you in more detail, starting with the first principle. principle 1 : cooperate without cooperation between central banks, supervisory authorities and finance ministries, there is no such thing as effective crisis management. there are several examples of situations in which inadequate or failed cooperation has resulted in a deepened and prolonged crisis. in fact, we recently experienced such a cooperation failure in my country, with the situation concerning swedish banks operating in the baltic countries. we, at the central bank, saw the build up of risk as problematic and believed that remedial measures should be applied. we also pointed to these problems in our financial stability report. in retrospect, we should have been clearer, especially regarding the potential consequences of these problems. but more importantly, we failed to reach agreement on this with the authorities in the baltic countries and with our own swedish supervisory authority ( as you may know, we have a separate supervisory authority – in contrast to spain, where supervision is undertaken under the umbrella of the central bank ). i am not pointing a finger at any particular authority in any particular country – let me be clear about that. but i firmly believe that if we had cooperated better, our countries would probably not have been as severely affected by the global repercussions of the credit crunch. to avoid this kind of cooperation failure, you need a clear division of roles and responsibilities. you need to share information and coordinate your actions. and to manage a crisis effectively, you need to be prepared. this requires planning ahead. by establishing, in normal times, what is usually referred to as a domestic standing group – bringing together the supervisory authority, the central bank, the finance ministry and perhaps certain other relevant authorities – you