svante oberg : my views on the riksbank and financial stability speech by mr svante oberg, first deputy governor of the sveriges riksbank, at a meeting with the swedish bankers ’ association, stockholm, 7 june 2011. * * * my term of office as deputy governor of the riksbank is drawing to a close and i have announced that i will not be available for a new period of office. after almost six years on the executive board of the riksbank, it feels natural for me to now reflect on the experiences we have had and what these may mean for the future. earlier in the spring, i presented my view of the riksbank and monetary policy. and now it is the turn of our other important main task, namely financial stability. in particular, there are three issues i would like to argue for : the riksbank and finansinspektionen ( the swedish financial supervisory authority ) should be merged the governor ’ s role should be strengthened the riksbank should have a sufficient foreign currency reserve. i will begin my speech by looking back on the years prior to the most recent financial crisis, the risks we saw – and the ones we didn ’ t see. i will continue by describing the financial crisis and the measures we adopted during the crisis. i will then address the future and the work that is underway as regards reforming the framework of the financial sector. finally, i will take up the three issues i have just mentioned and explain the reasons for my views on these issues. for the sake of clarity, let me also add that the opinions i will be expressing in this speech are my own. they are not necessarily shared by my colleagues in the executive board of the riksbank. the years prior to the financial crisis when i first arrived at the riksbank, i did not suspect that we were about to experience one of the worst international financial crises of our times. i had been through two previous crises. the first of these was the deep recession at the end of the 1970s and start of the 1980s, when, through a series of devaluations, sweden attempted to restore the competitiveness it had lost due to the severe price and wage inflation of the 1970s. the second was the crisis we experienced at the start of the 1990s. this was a fairly typical financial crisis, starting with the deregulation of the credit market and leading to a banking crisis, a deep recession and large public finance deficit

the riksbank ’ s lending facilities, we also decided to increase the number of counterparties. ( figure 3 ) the term “ lender of last resort ” refers to the central bank ’ s ability to inject money into the financial system. bis central bankers ’ speeches figure 3 the riksbank ’ s lending sek, billions source : the riksbank. we also provided special liquidity assistance to two smaller banks. when the icelandic bank kaupthing was impacted by the problems in iceland, the riksbank provided its swedish subsidiary with liquidity assistance. carnegie investment bank also received liquidity assistance when it encountered problems with its funding shortly thereafter. it was against this background of unease on the financial markets and the insufficient legislation we had at that point for managing banks in distress that the riksbank made the assessment that defaults by any of the banks could give rise to serious problems for the financial system. under other circumstances, this assessment would probably have been different. the riksbank was also very active in the international cooperation to strengthen financial stability in our neighbouring countries. together with the central banks of denmark and norway, we entered into a swap agreement with iceland ’ s central bank and, together with denmark ’ s central bank, we entered a swap agreement with latvia ’ s central bank while awaiting support from the international monetary fund ( imf ). the riksbank also entered into a swap agreement with estonia ’ s central bank. in addition, the riksbank contributed towards strengthening the imf ’ s lending capacity. sweden ’ s commitments to the imf increased heavily during the crisis and now amount to a maximum of over sek 100 billion. in addition, the riksbank entered into swap agreements with the central banks of the united states and the euro area to increase our access to dollars and euros. i will return to this later. in parallel with our liquidity assistance measures, we quickly reorganised our monetary policy. the repo rate was lowered from 4. 75 per cent in september 2008 to 0. 25 per cent by july 2009. furthermore, our assessment in july 2009 was that the repo rate would need to be kept at this low level for slightly more than one year. to emphasise this and also to hold down the longer interest rates charged to households and companies, on three occasions the riksbank offered one - year loans of up to sek 100 billion at interest rates of 0. 25 per cent. all in all, the