role of the banks has primarily been to act as an intermediary between savers and borrowers and to make available payment services linked to liquid deposit accounts. characteristic for a traditional bank portfolio is that lending is long or medium - term while the bank ’ s deposits are quite liquid. this has, of course, meant that the banks have assumed a credit and term risk. developments in recent decades have meant that competing alternatives have arisen to banks for both lenders and depositors. the base that has made up the foundation for the growth in profits of the banks has therefore tended to shrink. there have, for instance, been increased opportunities for big companies with credit risks that can easily be valued to use the security market to finance their investments. at the same time, households have obtained considerably more alternatives to invest their savings in and during recent years an increasing number of swedish households have opted to invest their savings in shares and share funds. deregulated financial markets have also entailed that price fluctuations in various financial assets and also in properties seem to have increased. at the same time, an increasing proportion of lending by the banks is to smaller enterprises and households, where the possibility of evaluating the credit risk in a traditional way is poorer than for large companies. altogether therefore considerably higher demands are made on the banks ’ risk management systems than previously. major investments in knowledge on modern financial economy and it - based risk systems are required for instance. this development is taking place at the same time as increased competition is tending to squeeze profits and information technology is changing the conditions for provision of payment services. when traditional bank activities shrink and change, the direction of activities has to be reviewed. the banks can for instance opt to take part in the provision of capital in the securities market and generate profits by charging fees for this activity. one strategy may be to offer businesses and private persons all financial services such as advice, insurance and payment services. in order to be competitive, larger banks are then often required, which is a driving force behind the increased frequency of bank mergers and mergers between banks and insurance companies taking place. another alternative is of course to concentrate activities and become competitive within a particular niche. small and medium - sized enterprises need for instance to have access to capital via banks which are able to obtain knowledge on the risks associated with lending to these. the possibility of turning to the securities market to have their need of capital satisfied should above all be confined to large businesses. the savings banks with their strong local implantation

without wishing to anticipate this inquiry, let me just note that we should, as far as possible, manage problems before they arise. finansinspektionen ’ s inquiry appears to be a step in this direction. the baltic countries – more stable but still cause for concern one risk tied to the financial markets and which is particularly important to sweden, is economic developments in the baltic countries. just a few weeks ago, we met here in the riksdag committee of finance to discuss the swedish banks ’ commitments in estonia, latvia and lithuania – what has happened in recent years, what we are expecting to see in the future and what we can learn from recent events. i do not intend to repeat what we talked about then, but can note that developments in the baltic countries do appear somewhat brighter now than they did a while ago, but that the future is still very uncertain. one question that could affect the region as a whole is, for example, estonia ’ s application to join the emu. loan losses in the baltic countries are still increasing, which in turn has a negative effect on the swedish banks ’ profitability. we are counting on loan losses there peaking during 2010, but also on the swedish banks being able to cope with the strains this will entail. an important element here is that the banks have increased their capital and thus their resilience to increased loan losses. the road ahead of us is not without problems. it is lined with a number of potential worries and difficult considerations, not least for central banks. but the situation in the financial markets is currently much more stable than it was during the crisis and the risk of setbacks has declined. one can say that the ice is safer. clearer signs of a recovery in the economic statistics as i have mentioned, there is a further overall reason that we are now on firmer ground. the economic statistics that have been coming in have been mainly positive. confidence in the future development of the economy has also taken a sharp upturn in sweden, the united states and the euro area ( figure 4 ). our assessment is that the situation in the world economy is continuing to improve. in most countries the economy is growing again and world trade is beginning to pick up after the abrupt slowdown in connection with the acute crisis ( figure 5 ). new figures have been published by statistics sweden since our most recent forecast was published. these show that gdp at the end of last year was lower than we had estimated. at