banks had one important piece of the puzzle already in place prior to the crisis. they were well capitalised and had built up capital reserves that corresponded to, or exceeded, the statutory level of 8 per cent. this created some resilience and to a great extent reduced society ’ s direct costs when the crisis occurred, as the bank owners ’ money was lost first. in some countries that have experienced bank crises, the central government has intervened and saved the bank owners ’ capital contributions. in my opinion, this is both unfortunate and inappropriate and creates the wrong incentives for the future. like the banks, the supervisory authorities and legislators lacked insight into what risks were actually associated with banking activities in a competitive environment. this meant that the supervision remained largely as it had been before, with unchanged resources, despite a drastic change in conditions. there was neither the competence nor the instruments needed to assess what risks were arising within the banks. the main emphasis was placed on the banks reporting their positions correctly rather than on analysing the underlying risks. there were few economists within the swedish financial supervisory authority, but a lot of legal advisers. what was really needed was a suitable mixture of the two ; and also other specialists in various forms of banking activities. our experiences of the crisis mean that i cannot emphasise strongly enough the importance of having carefully - drawn up legislation in place that can provide effective support for the supervision to be conducted. as well as support for potential crisis management. the legislation should provide the supervisory authority with obligations and powers of authority to intervene at an early stage against institutions that do not meet the requirements set, to avoid problems in one institution becoming magnified and spreading to others. the intervention by the authorities must be predictable and objective, so that the banks are not forced to operate in uncertainty. the legal rights of the parties in the financial market are important, at the same time as the authorities must be able to operate without the threat of legal countermeasures by the banks in the event of an intervention. the supervisory authority therefore needs to have adequate resources, the right competence and operational independence. there need to be clear rules as to how the authority responsible can take over and close a credit institution. this was not the case in sweden at the time of the crisis, which of course delayed the rescue work. creating confidence in the banking system – which does not become unconditional confidence if the central government acts as final guarantor – also requires a deposit insurance that clearly indicates how much of the

. the role of the krona for an inflation target policy as the krona has long come under focus, i would like to briefly remind you of the role the exchange rate plays in monetary policy. we have an inflation target, and the development of the krona has an effect on inflation, partly through import prices, partly through influencing demand for swedish goods and services. for instance, if the krona has a low value, demand and resource utilisation in the export industry increase. when we want to influence inflation, we do so primarily via the repo rate. occasionally, but in my view very rarely, we can also try to influence the exchange rate and thereby the inflation rate, through currency interventions. it is important to remember that we can never have a target for the value of the krona while monetary policy is directed at an inflation target. the monetary policy decisions are based on forward - looking assessments of the inflation rate. this means that the riksbank must make assessments of how the krona will develop in relation to other currencies during the forecast period, and assess what effect the development of the krona will have on demand for swedish goods, as well as the impact the krona will have on consumer prices. none of these assessments is simple. allow me first to point out the mechanisms that are important with regard to a direct impact on inflation via import prices. if the krona weakens and prices on the goods we import are determined in the exporter ’ s home country currency, the weaker krona will have a direct impact on import prices. for the weaker krona to have a full impact on prices of imported goods in the consumer channel, all domestic intermediaries must pass the price increases on to the end consumer. during the years with a floating exchange rate we have been able to note that the weakening of the krona has not had the impact on consumer prices that we had expected. one explanation could be that internationalisation and increased competition have first and foremost meant that the exporting companies endeavour to adapt their prices to developments on the markets where they sell, in order to retain their market share. it is reasonable to imagine that large corporations with sales and production spread around the world can act in this way without facing large fluctuations in profits. a german exporter selling goods both in the usa and in sweden could, for instance, have kept its profits up fairly well by determining its prices in dollars in the usa and in swedish kronor in sweden.