the crisis as far as the riksbank is concerned is that our currency reserve must be large enough to meet the foreign currency needs of the swedish banks in a crisis situation. one alternative that may be considered in order to dampen this need is for the riksbank to introduce a reserve requirement in currencies other than kronor if the banks have substantial exposures in foreign currencies. this reserve requirement could in principle entail the banks building up a liquidity buffer in foreign currency via the riksbank. we are at present studying the possibility of using reserve requirements in more detail. the central banks should not need to provide liquidity in the way they have done over the last two years. it is therefore reasonable to also tighten up the requirements governing the banks ’ liquidity management. the basel committee is now working on a global standard for liquidity management. under this standard, both short - term and long - term requirements will be imposed on the banks. the banks will be required, for example, to hold sufficient nonleveraged and highly - liquid capital to be able to meet the short - term need for liquidity in a stress situation. the long - term requirement relates more to structural aspects with the aim of preventing the risks that market funding and sizeable differences in maturities can lead to. this is a question of quantitative requirements for liquidity matching between the banks ’ funding and assets. governance to prevent systemic risks – the road ahead i would now like to say a few words about the road ahead for the authorities ’ efforts to prevent systemic risks. today, the riksbank has an overall responsibility for the financial system. finansinspektionen is responsible for the stability of individual institutions, but also has a responsibility for the system as a whole. together, our task is to try to steer the financial system away from instability and towards stability. the main responsibility for this of course lies with the banks themselves. the institutional frameworks give finansinspektionen the effective tools that directly affect behaviour – the possibility to change the capital requirements, impose sanctions, prohibit or stipulate measures and, ultimately, to withdraw permits and licenses. the role of the riksbank, on the other hand, is to exert influence by conducting a dialogue with the participants and issuing warnings about the risks that arise. the “ financial stability report ”, which we publish twice a year, is a central tool in this work. the idea is that our

although the financial crisis is helping to temporarily slow down the rate of increase of the banks ’ assets as a percentage of gdp, the historical pattern indicates that the swedish financial sector will remain sizeable or continue to grow. this means that the financial sector is of considerable importance to the national economy and it is thus reasonable that the state should intervene in the workings of the financial system. in the wake of the crisis, one element of the discussion has been that regulation and supervision have to date focused too much on individual institutions and too little on the risks that were generated in other parts of the system. there is a lot of talk about the need to build structures that can prevent systemic risks, a so - called macroprudential framework. exactly what a macroprudential framework contains is still unclear. it seems to mean somewhat different things to different people. i have therefore simply decided not to use this term today. instead i intend to discuss the content of future efforts to prevent systemic risks without even mentioning the term macroprudential or its swedish equivalent – a word that we have not yet invented. about the crisis : something old, something new and something borrowed running a bank is about creating and maintaining confidence. when a bank makes losses – or it is feared that it will make losses – capital is required to cover these losses so that confidence is not undermined. when the crisis became really serious, the banks did not have sufficient capital to retain confidence. this resulted in a liquidity crisis. the liquidity crisis became so severe because the banks had become increasingly dependent on short - term market funding. when it became apparent that impaired loans were in circulation but that no one really knew where they were and to what extent, confidence in the banks disappeared. the market participants stopped lending to the banks. the banks also stopped lending to each other and when it also became impossible to sell previously liquid assets or to use them as collateral for loans the liquidity crisis had definitely arrived. one lesson that we have learned from this is how quickly liquid markets can become illiquid. we also know that the participants and the authorities underestimated how seriously the markets would be affected by the crisis. but, when the price of an asset falls it is no longer possible to borrow as much money on this asset. participants are then forced to sell the asset to acquire liquidity. if many small – or a few large – participants sell at the same time then prices fall even further. from the point of view of an individual