in the form of pension schemes, have become increasingly important. some of the insurance companies are owned by banks, forming financial conglomerates, but others are independent. mortgage banks have always played a strong role in sweden. most of them are owned by the major banks, but a few remain independent. the banks themselves are also allowed to extend mortgage credits so there is open competition. the market for mortgage loans is highly competitive because the product is simple and comparable so it is difficult to argue for a higher interest rate. credit market companies, leasing companies, factoring companies, and card companies provide specialised financial services. some of them are linked to the bank groups while others are independent. many of them are quite small. equity and bond markets and exchanges for specialised products such as derivatives have grown tremendously both in volume terms and in terms of offering a wide variety of instruments ever since the first treasury bills were issued in sweden in the early 1980s. equity and bond financing have gained in importance relative to lending from banks. this diversification of funding is positive for financial stability, since the dominating role of the banks in providing loans is reduced. from the issuers and also the investors ’ viewpoint the existence of active markets ensures good competition, leading to efficiency and favourable loan terms. to sum up, the swedish financial sector contains many different types of institutions and markets and competition is strong. this is fine, because our crisis taught us the problems of being overly reliant on the banking system. the tendency is that the other institutions take markets shares from the banks, for instance in providing channels for saving. but since many of those institutions form part of bank groups, the bank groups ’ overall share of the financial system is not reduced to the same extent. recent developments in the composition and structure of financial services in addition to the developments in the institutions and markets, we are also witnessing new trends in financial services. mutual funds, money market funds, equity funds etcetera are growing rapidly. depositors seek higher yields than those offered by bank deposits and they invest in various securities and asset funds. banks and other asset managers, including hedge funds, make large profits from this business. the effects on financial stability are unclear. on the one hand, the growth of the funds means more liquidity to the equity and securities markets so they can provide more financing of investments hence reducing the reliance on bank lending. the risks to the banks, particularly credit risk, will diminish. but on the other hand, the risks will

anyway, for political reasons. this is often done in an unpredictable and sometimes unfair manner favouring certain segments of the population. the cost of such implicit deposit protection is often higher than that of explicit guarantees. a guarantee system makes it easier for the authorities to close problem banks. where such a system is lacking, the authorities tend to delay the unpleasant decision of closing a bank since they are afraid of the negative repercussions on depositors and other counterparties. but such supervisory forbearance only leads to growing problems and costs. it will always be difficult to close banks, but with a deposit guarantee at least the issue of the depositors is partly solved. what i just described fits in with the development in sweden. when the bank crisis came, we had no deposit guarantee system but the government found it necessary instead to issue a general guarantee, sometimes referred to as a blanket guarantee protecting all depositors but also other counterparts to swedish banks, with the exception of the shareholders. this guarantee was in fact much broader, and potentially more expensive, than a limited deposit guarantee. after the crisis, sweden has introduced legislation on a system of explicit limited deposit protection. all current deposits up to a certain amount, approximately 35 000 us dollars, are covered. for this, the banks pay a yearly premium, currently 0. 10 percent on average of the total amount of deposits. other parts of the financial sector in my presentation i have focussed on the banks, but an efficient financial sector must also contain a broad range of institutions and markets. they can specialize in certain activities and instruments and improve competition and diversity. they may also reduce the risk concentration on the banking system which implies that the overall economy will be less gravely hit if there ever is a systemic banking crisis. compare for example thailand in 1997, where the banks played a dominant role and russia in the same year where banks played a minor role. both countries were hit by financial problems but the overall effects on the economy were much worse in thailand. in sweden many different types of institutions and markets perform specialized roles alongside with the banks. there are also rapid developments in these in the form of volume growth but also in new or improved activities and instruments. the insurance sector which was as restricted in its activities as the banks during the regulation years has grown strongly in sweden after deregulation, both for non - life and life insurance products. the demography of sweden is such that we have an ageing population. thus savings for retirement, for instance