instead giving the bank a warning. the riksbank ’ s liquidity assistance has been repaid. the riksbank has also participated in the international cooperation to strengthen financial stability in sweden's neighbouring countries. in may 2008, the riksbank and the central banks in denmark and norway entered into a euro / icelandic kronor swap agreement with the central bank of iceland. the aim of this swap agreement is to support the icelandic central bank in its efforts to safeguard macroeconomic and financial stability. sweden's part of the swap agreement amounts to eur 500 million. the agreement was extended in december after the imf had drawn up a programme for financial assistance for iceland. latvia has negotiated a support package with the imf and the eu which will make it possible for the country to retain its fixed exchange rate against the euro. in december, the riksbank and the danish central bank entered into a swap agreement with the latvian central bank. under this agreement, latvia may borrow up to eur 500 million in exchange for latvian lats. the intention was that this agreement would act as temporary funding in order to strengthen financial stability in latvia until the imf decided on its support package. the support package was approved by the imf just before christmas. it is not only the riksbank that has taken action to counter the effects of the financial crisis. the swedish national debt office, finansinspektionen and the government have also acted to safeguard the functioning of the swedish financial system and to mitigate the effects of the crisis on the real economy. the national debt office has acted to meet the dramatic increase in demand for treasury bills. extra auctions have been held in order to issue larger volumes of short - term treasury bills than normal. by the turn of the year, the national debt office had issued more than sek 190 billion in treasury bills over and above the regular loan programme. during the autumn, finansinspektionen decided to change the regulations for calculating the discount rate for life insurance companies. the aim was to arrive at a more reasonable calculation of the companies ’ debts and to mitigate disruptions on the bond markets. finansinspektionen has also altered the capital adequacy rules for credit institutions and securities companies. the aim of this change is to make it possible for the financial companies to strengthen their capital situation by being able to have a greater proportion of financial instruments other than shares in their capital base. at the

sold. 17 another argument sometimes put forward in favour of large bond holdings is that the central bank ’ s purchases would increase the supply of safe assets in the economy, and that there is otherwise a shortage of such assets. 18 the riksbank ’ s bond purchases result in that government bonds with a specific maturity disappear from the market and are replaced by riksbank certificates with a maturity of one week. 19 the riksbank then takes over some of the maturity transformation that the market otherwise tries to achieve on its own, and helps to reduce the interest rate risk in the outstanding portfolio of government securities. this argument isn ’ t particularly convincing either. if it is considered important to have short maturity on the national debt in normal times, this should be dealt with when the government bonds are issued, and it is then a question for the national debt office. furthermore, the conversion from government securities to riksbank assets does not seem to increase the supply of safe assets in sweden ; the interest rate on ( short - term ) government securities is lower than the repo rate which means that the market price of government bonds is higher than the price of riksbank certificates with the same maturity. this pricing indicates, if anything, that the market prefers to hold government bonds rather than central bank reserves and hence that the riksbank ’ s bond purchases are reducing the supply of the safest assets. another indication of this is that the term premiums on government bonds have been very low, and probably negative, in recent years. 20 this suggests that government bonds with long maturities are not being priced with risk premiums in relation to riksbank certificates or government securities with short maturities. 7 i have now discussed arguments that could indicate that the riksbank should continue to maintain a large portfolio even in the future, and i don ’ t consider these arguments to be particularly strong. but does this mean that the size of the balance sheet has no significance or are there strong arguments indicating that the riksbank ’ s balance sheet should be small? arguments against substantial bond holdings in normal times maintaining a large balance sheet can be associated with risks, but the nature of these risks depends both on the assets held by the central banks and how these are funded on the liability side. the risks may relate to the central bank ’ s financial position and ability to conduct monetary policy and simultaneously fund its own operations, as well as to its reputation and possibility to safeguard its independence in monetary policy issues. plosser