lars heikensten : challenges for the swedish fixed income market speech by mr lars heikensten, first deputy governor of the sveriges riksbank, at the rantevent, modern museum, stockholm, 8 may 2001. * * * the swedish fixed income market has undergone a fantastic development over the past 20 years. this refers to both the volumes traded and the level of sophistication. however, the journey here has by no means been a simple one. at times, both profitability and activity have been quite low. today the market is facing new challenges. profitability appears to have fallen and with it both the number of players and the volumes traded. the risks are now also covered to a greater extent by swedish players trading in, for instance, the german market. the swedish fixed income market has thus lost ground, relative to other countries. it also appears to have lagged behind in the sense of technology. a year or so ago there was an attempt to introduce a new instrument, a swedish fixed income future, with the aim of increasing the market's powers of attraction. this attempt did not live up to expectations, however. today we are gathered here partly because of a new initiative, a platform for electronic fixed income trading. let me start by saying a few words about the way i see the role of the riksbank in this context. our fundamental objectives are to safeguard price stability and promote a safe and efficient payment system. there are connections to the fixed income market in both of these considerations. however, this does not mean that we have an opinion on which system solutions the market chooses as long as they fulfil reasonable requirements for security and efficiency. this area lies outside of our core objectives. this is why we also remained outside of the discussion on a fixed income future a few years ago. given this, i would like to share a few, brief reflections with you. firstly, i shall go through the advantages of electronic trading. my views on this are mainly a matter of principle. after that i intend to make some brief comments on a few aspects of the swedish fixed income market today and in this context say a few words on the consequences that electronic trading may entail. finally, i intend to take up a more specific question, settlement on the fixed income market. we do not consider that this functions sufficiently well from a financial stability perspective. electronic trading, an opportunity let me begin by pointing out that electronic trading systems are being used

and the share of community banks that operate primarily in rural markets has increased slightly, from 53 percent to 54 percent. while there are more rural community banks than urban community banks, the latter consistently account for a larger volume of deposits, loans, and offices than the former. this difference is due, in part, to the average size of an urban community bank, in terms of total assets, being about two and a half to three and a half times that of the average rural community bank ( figure 2 ). as community banks have increased in asset size, they have also grown their branch networks. the average number of branches for an urban bank is about 1. 7 to 2 times that of a rural bank ( figure 3 ). looking next at the total amount of deposits held by all urban community banks and all rural community banks, we can see that both have been trending upward over time ( figure 4 ). growth in total loans outstanding was strong for both urban and rural community banks between 1997 and 2008 ( figure 5 ). declines in lending between 2008 and 2011 were more severe for urban community banks than rural ones. coming out of the recent recessions, rural community banks have seen quite modest loan growth since 2011, while the pace of growth in urban community bank lending has been strong since 2013. this divergence in recent growth rates may be due to the fact that the recovery - 7from the recent recession has been much more robust in urban areas than in rural areas of the country. when it comes to performance measures, rural community banks consistently outperform urban community banks with regard to return on assets ( figure 6 ) and return on equity ( figure 7 ). this difference was particularly pronounced during the financial crisis, when profitability fell much more sharply at urban community banks than at rural community banks. looking at charge - off rates ( figure 8 ), we see that they have been quite similar for the two types of community banks over most of the past 20 years, except for the period from 2008 to 2013, when rural community banks had lower charge - off rates than urban community banks. this data suggest that, despite facing a more challenging economic environment, rural community banks appear to be holding their own relative to urban community banks. market - level trends for all banks and community banks now i would like to shift my focus from the banks themselves to the communities they serve by exploring whether access to banking services - - provided by community or larger banks - - has been declining in urban or rural areas