of saving, the funds essentially function like normal banks, even though they are not banks. when we say that, before the crisis, there existed an extensive shadow banking system that was not as strictly regulated as the “ real ” banks were, it is partly these funds to which we are referring. accordingly, money market funds do not like credit risk. so when the funds ( and their customers ) started to suspect that some european banks had large holes in their balance sheets, they pulled out of the market. this was not a matter of pricing, it was a matter of credibility. many us funds were also impacted by significant redemptions, partly because the customers needed the liquidity, but also because the customers became uncertain of the risks existing in the funds ’ investments. in sweden, the banks had no significant holdings of bad us mortgage securities, but they were still affected by the same difficulties as other european banks in borrowing dollars. initially, of course, the market did not know that the swedish banks had not purchased any “ toxic assets ” and had not lent significant amounts of money to any banks that had. but more important was the uncertainty that arose as a result of the swedish banks ’ extensive lending in the baltic countries. only two of the banks actually had significant business in these countries, but, as banks lend money to each other, it was not easy for the rest of the world to know where the risks actually were. consequently, all swedish banks encountered difficulties in borrowing on the market. … and how it was solved however, the inability of the european banks to borrow dollars as before turned out to be not only a european problem but, in fact, also a us one. when the flow of capital from the private market in the united states suddenly decreased, the european banks found it difficult to repay what they had borrowed from their us counterparts. but the us banks were already facing difficulties with their liquidity – because they were also dependent upon short - term borrowing from the money market funds. they needed every dollar they could get back from their european counterparts. so the european dollar problem bounced back to the united states. in this situation, the us central bank ( the federal reserve ) decided to supply the european central bank ( the ecb ) and a number of other european central banks, including the riksbank, with dollar loans. while this had already been carried out on a smaller scale since 2007, it escalated steeply in conjunction with the lehman collapse. this lending was conducted via what are known

management. in order not to waste valuable time in an emergency, you need to have ways to settle them as efficiently as possible already in place. in my opinion, specifically ex ante arrangements for burden sharing between countries are needed. managing conflicts of interests conflicts of interests can become apparent in many ways, for example, if a cross - border bank becomes insolvent and incurs social costs that somehow need to be shared between the countries involved. the problem of burden sharing becomes particularly precarious when, for example, the bank is significant to the banking system in some country but not in some other countries, or if there are great discrepancies between the ratio of the bank ’ s size to the gdp of the different countries involved. the social costs that may call for some burden sharing can take many forms. for example, there may arise situations in which the taxpayers in one country may be faced with the prospect of essentially bailing out the depositors of a branch in another country through their national deposit guarantee scheme. incidentally, there is a recent example from my own country ( although, technically, it concerns a bail - out under the investor compensation scheme rather than the deposit guarantee scheme ). after a long and complicated investigation the swedish deposit guarantee board decided around two weeks ago to commence payments to a group of mostly italian investors that were the unfortunate clients of the hair - raisingly ill - managed securities company cta, which went bankrupt in 2004. fortunately, cta was not one of the bigger players – in fact i had never heard of it before it became an item for the deposit guarantee board – and the fund will be able to cover the payments to the approximately 1 200 clients, amounting to around €10 million in total. however, if a larger institution had gone bust, the fund alone would not necessarily have been able bail out the investors. all deposit guarantee schemes – as well as investor compensation schemes – are typically underfunded and are not able to cope with failures in large cross - border financial institutions. in such events, additional government funding will be needed. or, if emergency liquidity assistance was provided at some point during the course of the crisis ( on the erroneous assumption that the bank was basically solvent ), a loan loss may be incurred on the national central bank that acted as a lender of last resort. and, of course, when giving liquidity support to a bank with cross - border operations in many countries, you can never be entirely sure