. after all, such intervention would have to be paid for by the home country ’ s taxpayers. problems arising from the need to rely on home country regulation and supervision have become evident in the aftermath of the melt - down of the icelandic banks and the subsequent disagreement between icelandic, british and dutch authorities regarding compensation of the customers of icesave, which was operated as a branch. 17 moreover, the incentives for monitoring banks with foreign branches may differ between the home and host countries ’ authorities. consider for instance the case where a bank which is relatively small in the home country runs a foreign branch which is systemically important in the host country. the home supervisors, who are responsible for the supervision of the foreign branch, may not think that the bank merits very careful supervision. at the same time the supervisors in the host country, who are responsible for financial stability in the host country, have strong incentives to monitor the bank closely. a third major issue connected to the increasingly integrated banking sector is the concern that some institutions have become “ too big to fail ” or “ too complex to fail ”. in principle, however, this concern is not related to whether banks are involved in cross - border activities or not. in practice, banks considered “ too big to fail ” tend to be banks with cross - border operation simply because multinational banks tend to be big. 18 as we know, the implicit government guarantee of the survival of banks that are “ too big to fail ” has raised serious concerns about the moral hazard built into the system. banks that expect to be bailed out if things go badly are likely to be willing to engage in excessive risk - taking in order to maximise their profits. policy responses and the importance of effective cooperation dealing with these difficulties is a top priority among policy - makers world - wide. a number of proposals on how to deal with large cross - border banks have recently been put forward. some of them include limiting the size of banking institutions that are considered too big to fail and restricting the scope of their operations. some suggest that we should consider preventing the banks from operating abroad through branches. there is no perfect solution. the moral hazard problems generated by banks being “ too big to fail ” are of course very important and we need to find ways to deal with them. but the nature of these problems is different from the one created by banks ’ cross - border operations. just because the biggest banks conduct foreign operations, it is not necessarily the foreign the disagreement between iceland, on the one

impossible to know which participants were exposed to the most serious risks. this impenetrable uncertainty was one of the main factors that contributed to the paralysis of the world ’ s financial markets in the autumn of 2008. it is often uncertainty about the true state of things that in itself makes people nervous and that sometimes leads to bank runs and panic selling, which in turn can lead to devastating chain reactions in the financial system. of course, the need to increase transparency primarily falls bis central bankers ’ speeches on the participants in the financial system. but the riksbank can also contribute by being open about its assessments and analyses of the state of the financial system, for example by publishing stress tests. how open the riksbank should be about its assessments, its preparedness and its own measures is determined by how this can be expected to affect confidence. in a crisis situation, we may of course be forced to carefully consider what can or cannot be said. however, the fundamental rule is that it is better to be open and clear than to be uncommunicative and ambiguous. a “ negative ” but reliable announcement can therefore be better for confidence than a “ positive ” but uncertain announcement. openness about the problems that underlie a crisis may therefore be the key to regaining confidence. this is a lesson we learned from the swedish banking crisis of the early 1990s 11 – and a lesson that proved useful during the crisis of 2008 – 09. 12 how we communicate is, however, something that we need to work on and develop constantly. at present, we are trying to improve our communication concerning our assessments of the risks in the financial system. not least, we want to be even clearer about how we want the banks and other financial agents to respond to these assessments. we are therefore currently developing ways and means of presenting our recommendations to the participants in the financial sector. from this it follows that we also need to review ways and means of following up the recommendations we have made. the recently - formed macroprudential council also means that we will be able to coordinate our communication with that of finansinspektionen to a greater extent than before. macroprudential policy needs clear mandates and effective tools the cooperation between the riksbank and finansinspektionen will probably lend greater weight to the communication of risks and countermeasures, which is good. but the new macroprudential council does not make any decisions on its own. the council will not alter the