the whole economy. in that case, we would have had a much poorer development than is indicated in figures 1 and 2. when it comes down to it, the repo rate has not been higher than 1 per cent for around one year now. sometimes it is claimed that even this is a high level. but usually one is then comparing it to countries that have been hit harder by the crisis, such as the united states and the united kingdom, where housing prices have already fallen substantially and one therefore does not need to worry so much about a continued upturn from an already high level. moreover, the relationship between the policy rate and credit growth, which is of course important in this context, is not straightforward. figure 3 shows, for instance, that credit growth in sweden is higher than in the euro area, despite the riksbank ’ s policy rate being higher than the ecb ’ s. the riksbank ’ s strategy has been to combine a marginally higher repo rate with communication that emphasises that we find the development of high credit growth worrying. the slightly higher interest rate does have some effect in itself, but perhaps its main function is as a concrete “ reminder ” of the risks, making it an important part of the communication. one may of course discuss how effective this type of policy is. however, i am fairly certain that, combined with the measures taken by finansinspektionen ( the swedish financial supervisory authority ), it has had at least some effect in the desired direction – that both indebtedness and housing prices in recent years would otherwise have increased more and faster than they actually have done. i am even more convinced that the policy and the communication surrounding it have helped increase awareness of the problems. my view is that the risks linked to developments in the credit and housing markets have been given an increasing amount of attention in the media and in the general economic debate recently, which appears to be confirmed in figure 4. despite the relatively good developments in sweden in recent years, and the fact that the repo rate is still low, the policy conducted by the riksbank has given rise to considerable debate. some arguments in this debate have been understandable and natural. the size of the risks linked to household debt and developments in the housing market is, for instance, one question that certainly can and should be discussed. this is something that is inherently this was something that also affected policy to some extent before the crisis, see for instance nyberg

the banking sector and in the oversight of the payment and securities settlement systems ( system oversight ) - but also contributes actively to overcoming crises. in a crisis, the national bank - like any other central bank - is primarily responsible for maintaining liquidity. on the one hand, it can do this by ensuring that the market is amply supplied with liquidity. and on the other hand, as lender of last resort ( lolr ) it can also provide emergency liquidity assistance to individual banks that are illiquid but still solvent. here too we adopt internationally accepted procedures. many central banks still prefer not to inform the commercial banks in too much detail about their role as lolr. quite understandably, they want to prevent the banks from being lulled into a false sense of security. the jargon term for this is “ constructive ambiguity ”. by contrast, the swiss national bank has opted - after carefully weighing up the moral hazard implications of its conduct - to communicate its terms to the banks both clearly and well in advance. the modalities are described in the guidelines of the swiss national bank on monetary policy instruments of 30 april 2004. to receive an lolr credit, a bank must on the one hand be systemically relevant and, on the other hand, be solvent and able to furnish sufficient collateral. without collateral, the national bank cannot grant any credit. this fundamental principle is enshrined in the national bank act. by disclosing our terms to the banks in advance, we are eliminating any possible misinterpretation of the liquidity risks and helping to ensure that preparations are in place for a liquidity crisis which can never be ruled out altogether. this is what we refer to as “ constructive clarity ”. conclusion to sum up, i would like to reiterate that the situation of the swiss financial system is stable. however, this gratifying conclusion should not allow us to rest on our laurels. maintaining a stable financial system in the long term calls for constant efforts to prevent and cope with crises. while this challenge must primarily be met by the private sector, the authorities can, should and must support its efforts. financial stability report 2004 ( 424 kb )