of place on the economic policy agenda. the final policy objectives were the same as before but the perception of the conditions that were needed to attain them had changed. this realignment of stabilisation policy occurred, however, at a time when the earlier policy ’ s negative consequences had begun to leave their mark. due to the high level of costs in manufacturing, for example, economic growth in sweden was weak. in addition, a rising real interest rate coincided with a period when the tax reform made savers and investors more sensitive to interest rates. all this had a marked downward effect on domestic demand. the drop in output — almost 6 per cent in the course of three years — meant in turn that government finances worsened dramatically. from a surplus at 4. 2 per cent of gdp in 1990, the budget balance swung to a deficit of 12. 3 per cent in 1993. in this period, moreover, registered unemployment shot up from 1. 7 to 8. 2 per cent. in a way, the economic crisis in the early 1990s can be said to have been generated by political decisions. the combination of a stabilisation policy realignment with some structural reforms did play a part in the course of the crisis. but it should also be underscored that such measures were broadly essential. the problem was not so much the measures that were implemented when an inflationary bubble had already developed as the fact that policy had not been realigned earlier. in recent years, economic developments in sweden have been favourable. growth has been stronger than in the high phase in the late 1980s and it has proved possible to combine good growth with low inflation. a couple of years after the realignment of economic policy, inflation had fallen - 2sharply to around 3 per cent. moreover, the reduction of current inflation has been accompanied by a downward revision of inflation expectations. today, neither households, firms nor financial market agents perceive any serious threat from inflation in the coming five years. government finances have also improved markedly since the effects of the acute crisis in the early 1990s were overcome. after rapid budget consolidation, a surplus of 1. 6 per cent is forecast for 1998. government debt has been reduced since 1995. still, the restoration of confidence did take a long time. there were strong and persistent doubts about both the determination and the ability of the government and the riksdag ( sweden ’ s parliament ) to carry out the proposed measures. finally it is worth noting that the steps for reorienting economic

politiken. everyone working with these issues should read it. her main point is that the number of rules aimed at regulating the financial sector ’ s activities is overwhelming – and more are to come – and often the contents are so detailed and complex to read that even a person with a doctorate in law finds them very difficult to understand. there is a multitude of different rules with different structures, exemptions and levels of detail. it is completely overwhelming. what does this mean to banks, their boards and their customers, and how about the legislators? are we constructing a vehicle where the person in the driver ’ s seat with a firm grip on the steering wheel believes to be steering it, while the car is in fact following its own path with considerable backlash? there is no simple answer to this question, which is not unique to financial regulation. as i have already said, individual countries have little room for manoeuvre as these activities take place at the international level. however, it is important to make the rules as clear and simple as possible. that will make them easier to observe and control. keep it simple. let me try to illustrate this. since 2004, danmarks nationalbank has prepared so - called outlier memos, i. e. identified outlier banks. on the basis of – mainly – published financial statements for a large group of banks, we have been able to point out those that achieved the lowest scores for selected key ratios, such as excess capital adequacy, high lending growth, large exposures and earnings capacity. using this simple method, we sought to identify potentially vulnerable banks. subsequently, we have concluded that virtually all of the banks within this group that have actually become distressed had been identified beforehand using this relatively simple method. the danish financial supervisory authority was aware of this and included it in its supervisory activities. with the “ supervisory diamond ”, the danish financial supervisory authority has taken a step in the right direction, with focus on observing a few key ratios – and now with sanctions for non - observance. and others can also monitor these key ratios. another interesting observation is that among the 10 banks identified before the crisis as having the highest exposures to the property sector, 8 – 9 have subsequently become distressed. so the conclusion is that relatively simple key ratios can be used to identify the banks that could be at risk. aggressive lending growth combined with property speculation is the single factor with the greatest impact on the banks that have folded. * * *