the economy. events in recent years would indicate this is so. however, financial crises can never be entirely avoided. they will recur. those who legislate, regulate and oversee the markets will not be able to prevent this. so what can we do? to begin with, of course, we need to obtain the best possible overview and knowledge of events. we at the riksbank consider the work in the bank of international settlements within the g10 to be invaluable in this context. there is also other work, for instance under the auspices of the international monetary fund, from which we can learn. one consequence of this development is that we must take international conditions into account to a greater extent in our own work on stability analysis. we must also oversee developments in the financial markets more than we have done and not only concentrate on the major banks. we must try to be aware of when prices depart from reasonable levels and become a risk. with regard to risk management in individual institutions, it is becoming increasingly difficult to gain insight into what is happening. it is therefore necessary to spend more time on evaluating the systems and person involved. this is the view that has coloured the new oversight system for the banks, what is known as basel ii, which is about to be implemented. it is also our task to equip the systems and infrastructure so well that the effects of any future crises will be minimised. in addition, we must of course maintain preparedness for managing crises, something which has become more complicated as integration has increased and which now requires greater efforts by central banks and financial supervisory authorities. agents in the financial markets must also take responsibility. the risk management models in the financial institutions must be tested to a greater extent with regard to how they will function if market conditions change rapidly. var models need to be supplemented with stress tests that capture external events. extensive price fluctuations and changes in pricing dynamics may mean that historical relationships no longer apply. 4 / 5 this is the financial system as we usually refer to it. however, perhaps the greatest difference that has occurred in the financial markets is that households have become a significant agent, even in sweden. this applies first and foremost to households investing in mutual funds and pension companies. however, it applies to an increasing number of households, particularly through the new public pension system. households as a group therefore bear more direct financial risk now. this also raises important questions. are they prepared for this? what role do schools play in providing

probably lead to fewer, but more serious financial crises. let me begin by discussing the potential advantages of the new developments. have the financial markets become more robust … the question of whether the financial markets have become more robust is one asked by many people after the asia crisis, the russia crisis, ltcm and other crises came and went without leaving making any major disruptions in the markets, other than temporary and relatively small price fluctuations. the effects on the international financial system were thus slight, although the crises affecting both asia and russia led to extensive redistribution of wealth and political tumult in the countries concerned. there are probably several reasons why the effects were so limited. one is probably that economic policy has become more predictable in many countries in recent decades, with sound public finances and stable, low inflation. the markets should therefore be less sensitive to shocks. however, another reason is actually that the financial system has become more resilient. the fact that risks have a better spread makes the system more stable. the risks are also transferred to the agents who want them or should have them. there is also the fact that the banks have gained more experience of operating in deregulated financial markets. the development towards more market - based transactions means that banks can now concentrate on the risks they are best at managing. they have also become better at managing them, with well - developed risk management methods and models. so far, so good. a better spread for risks and improved risk management can contribute to better absorption of shocks to the financial system. on the other hand, there can be elements that increase the risk of more serious shocks that also spread throughout the whole system. … or have they become more prone to risk? one such tendency could be an increased propensity among market agents to take greater risks and to copy others ’ actions. the reason for this is that those investing our money today are to a greater extent assessed – and thereby also rewarded – in relation to other agents and on a shorter - term basis than was the case in the world of traditional banking. it is also simpler to follow in others ’ footsteps, as there is more information on what others are doing. the crises we have experienced in recent years have recurrently shown that events assessed as almost improbable can nevertheless occur sometimes and will then have a severe impact. to use tage danielsson ’ s words, this type of risk could be described as follows : before the event occurred, it was extremely improbable