more sophisticated today than they were in the 1800s, the basic role is the same, that is to mediate credit and provide payment services. these functions are indispensable to a modern society. if they were to fail, the entire economy would suffer extensive and indiscriminate damage. this is what gives the financial sector its unique position. banks entail bank crises the expansion of the banks also led to bank crises. in sweden, for example, the expansion of the 1870s ended in the severe crisis of 1878 - 1879. one of the causes was that the private construction of railways had been excessively boosted by the ample supply of capital during the expansion. the crisis hit those trading companies and banks that had been far too optimistic in their provision of loans. stockholms enskilda bank, headed by a. o. wallenberg, suffered the most when the public stormed the bank to withdraw their money. the finance minister of the time was forced to intervene and stockholms enskilda bank and other problem banks were able to get liquidity assistance with the help of foreign loans. lack of experience and underdeveloped risk culture paved the way for the crisis of the 1990s if we take a leap forward in history, then many of us probably remember the domestic financial crisis that began in the early 1990s. for a long period following world war ii, the financial markets had been kept under very strict regulatory control by the riksbank. however, the phase - out of the regulations began in the second half of the 1980s and culminated when the foreign exchange controls, which originally were part of the crisis regulations introduced during the war, were abolished in 1989. when the floodgates were opened there was no way to stop the rapid increase in the demand for loans, and there was no incentive to say no to loan applications. the risk culture at the banks was still underdeveloped. one consequence of this was that the credit risks on the overheated property market were underestimated and underpriced. once again, careless lending became one of the causes of a crisis in the financial system. a factor worth mentioning in connection with the crisis of the 1990s is the role of the finance companies. the credit regulations had gradually creating a breeding ground for a " grey " credit market. the less strictly - regulated finance companies had been given room to expand by providing loans to the rapidly - expanding construction and property markets. the financial companies largely financed themselves in the short term by issuing so

addition to the present regulatory structure within the eu. what i have in mind is an institution with real resources and not a “ talk shop ” primarily designed to build consensus. conclusions let me summarise. during the last decade, the banking sector has increasingly become cross - border. we should welcome this rather new form of financial integration as it enhances competition and stimulates economic growth. this development also raises challenges for the regulatory community. our answer to these challenges should not be increased protectionism. instead, we need to find new forms for cooperation and supervision that allow the benefits from integration to be realised. today i have presented to you my thoughts on the need for a special body with the mission to supervise the major european cross - border banks. since this proposal to some probably seem rather radical and not very conceivable in the shorter term, i have advocated a gradual approach. in my view, the time has now come to set up the modalities for achieving this goal. the reason why i have chosen a european focus is simply that there are already institutional arrangements in place which can be used as a platform for bringing us closer to the goal of supra - national supervisory frameworks. in my view though, the underlying challenges of financial integration are of a global nature. therefore, even if it may not be possible to achieve the same solutions outside europe, it should be of wider international interest to at least move in the direction of enhanced cooperation between supervisory authorities. i hope that i have been saying here today can serve as inspiration for further discussions on this issue. considering that financial integration is already widespread and that the process of revising present regulatory structures will most certainly be demanding and protracted, we need to get to work. returning to what i said in the beginning, history shows us the importance of having proper regulatory structures in place. therefore, it would be highly unfortunate if the appropriate measures have not been taken before the next major financial crisis occurs. for once, it would be encouraging to see pre - emptive policy actions rather than a crisis being the catalyst for such actions. thus, in the same way as the international community is facing increasing challenges to cope with the negative externalities in the environmental area, the financial regulators have to face the consequences of financial integration. it is my hope that we as regulators show enough courage and determination to tackle the negative externalities a potential financial crisis would entail – before it hits us. let me finish by saying that the issue of financial