severe credit tightening as a consequence. but systemic risk is not just a matter of a tendency towards exaggerated cyclical behaviour in credit granting. it is also a matter of how the concentration of risk and the links between different parts of the financial system at any given time affect the risk of a crisis hitting the system as whole. for example, several banks can take the same kind of risk or be dependent on the same funding sources. the high degree of interconnectedness in the financial system – between different institutions and between different markets – increases the risk of contagion when financial problems arise. 5 circumstances that need not constitute a risk on the micro level can thus become risks on the macro level. not knowing which risks will trigger systemic crises is in the nature of things. of course, this is because the financial system is constantly changing – new instruments and markets arise and technology develops. and, as the financial system changes, the risk outlook changes too. what at first seems to be uncomplicated and “ risk - free ” need not be so in reality. this suggests that a broad set of macroprudential supervision instruments is needed to tackle systemic risks. … suggest a broad toolkit for macroprudential supervision so what should we bear in mind when selecting and designing tools for macroprudential supervision? firstly, we need to be able to counteract different types of systemic risk and, for this, we clearly need different types of tool. the principle used in dealing with problems involving a tendency towards exaggerated cyclical behaviour is to variously make it more expensive and less attractive to allow risks to build up when times are good, at the same time as buffers are created that can be used when times are bad. problems caused by the financial system ’ s structure should instead be approached by managing individual institutions ’ contributions to total systemic risk, for example by way of specific requirements for capital buffers, strengthened requirements for transparency, or limitations on certain types of activity. secondly, there is probably a need both for tools with a wide area of effect and for those aimed at a particular sub - market or activity. countercyclical capital buffers are an example of a tool with a relatively wide area of effect. these are based on the total expansion in credit and cover all banks. i will return to this instrument shortly. however, such broadly - acting tools the riksbank has defined financial stability as meaning that the financial system can maintain its basic functions while also having resilience to disruption

be lost if we have a joint monetary policy steered by inflation and economic prospects throughout the entire euro area. this was the primary reason why the calmfors commission, which examined the consequences for sweden of participation in the third stage of emu, concluded that sweden should wait before joining the eurosystem until the swedish labour market and wage formation showed sufficient flexibility to be able to manage a serious shock. it is often forgotten that one of the points of the eu is that the union shall function as an insurance ; that the countries are strong standing together than they are standing alone. in practice, it is also the case that when the swedish economy has come out of synch with the euro area, this has not been due to shocks over which we had no control, but to mistakes made in our own economic policy. there are also many indications that the covariance between sweden and the euro area will increase further if we join the eurosystem, as trade and integration with the euro countries would be strengthened. increased trade and greater openness to the outside world have positive effects on the development of growth and incomes. in my opinion, the european integration of which emu forms a part should not stop at the borders of the eu, but be the first step towards greater global openness. conclusion i have today accounted for the current monetary policy situation in sweden and the assessments that formed the basis for our decision last week to leave the repo rate unchanged. a low inflation rate ( 2 % ), which is the target for monetary policy, does not in itself create good growth and welfare ; it should rather be seen as a fundamental condition to ensure that other parties - trade and industry, organisations, government and parliament - are successful in working to improve sweden ’ s economy by various different means. in other words, it is an extensive and complicated interplay that will determine how well a country ’ s economic potential is realised. the riksbank does its best to ensure that monetary policy provides a contribution here. thank you for listening! emu commission of enquiry report sou 1996 : 158. 1. savings in the usa savings ratio sparkvot forecast prognos 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 source : us department of commerce 2. unemployment in the usa, the euro area, germany and france usa euroomradet euro area germany tyskland frankrike france sources : bureau of labor statistics, eurostat, federal labor office, national employment office 3. euro area