will ultimately contribute to future prosperity. but experience has taught us that it is a development which needs to be monitored very closely and presupposes a high degree of discipline in economic policy. it requires a great deal from decision - makers in the political system and the supervisory authorities, as well as from those of us who work in central banks. developments in the financial field are creating large opportunities. but it is also important to bear in mind that major, far - reaching changes normally entail risks. in view of these risks, every agent in the financial system needs to act wisely and discerningly. only in this way can the full benefits be drawn from the opportunities that financial developments are providing.

a process that has already begun. banks are being merged into large units. cost - cutting has come to the fore. modes of distribution are being overhauled along with a buildup of specialist knowledge. systems for pricing different products are being changed. financial transformation not straightforward today there is a widespread conviction that free trade in goods and services enhances prosperity in the long term. in the same way, most things suggest that in time, free trade in the financial field leads to increased economic growth. but we have also learned that the transformation and development of the financial field are not without problems. in the past decade there have been bank crises in a number of countries as well as several heavy corrections and large fluctuations in money, equity and currency markets around the world. there is nothing inherently new about financial crises. on the country, they have occurred from time to time for many centuries. experience shows that free trade and transformations in the financial field require a great deal from economic policy, its decision - makers and various authorities, as well as extensive cooperation between countries. this is all the more the case in that, with the increasingly integrated financial system, mistakes in one part of the world may quickly lead to economic repercussions elsewhere. many financial crises in the past decade the financial problems at present in countries in asia and other parts of the world are in many respects similar to the situation in mexico a couple of years ago, as well as to the swedish crisis in the early 1990s. financial problems arise in an economy essentially as follows. banking involves accepting deposits from the non - bank public and transforming these short - run savings into loans with longer maturities to households and firms. this transformation of maturities is normally an economic benefit for society as a whole. the banks provide payment services and mediate credits. however, the commercial practice of borrowing short and lending long is associated with risks. if people perceive a bank ’ s position as uncertain and withdraw their savings, the bank will need to obtain liquidity elsewhere ; otherwise it will have to suspend payments and ultimately go bankrupt. in the latter event the bank ceases to contribute to the workings of the economy. if this happens to a single bank, the economic consequences may not be serious. if it involves the whole of the banking system, however, economic activity may be profoundly weakened. that is why banking operations need to be safeguarded. one safety measure is the possibility, in exceptional circumstances, of the central bank intervening as the lender of last resort. this