management. although much was expected from this diversification strategy, the market correction was a reminder that fee income generated by these businesses also carries risks. looking back, i think we can also say that some banks entered the businesses too late and at too high a price. the corporate scandals that coincided with the market downturn raised further questions about certain bank practices and chinese walls did not always prove to be as impermeable as might have been expected. in my list of stressful events, i should also mention the re - emergence of country risk problems and the fall - out from the terrorist attacks in the united states. country risk re - emerged as turkey and argentina were caught up in currency and banking crises. although the crises had only limited economic effects on the eu banking sector as a whole, some banks incurred substantial losses. as to the tragic events in the united states, they had an immediate effect on the working of financial infrastructures and markets, but this was tackled quickly and efficiently by the competent authorities, including those here in europe. in the medium term, however, the attacks shook investor and consumer confidence further. the third challenge, to conclude my brief overview, is that this extraordinary set of events took place at the same time that the economy was starting to slow down from the second half of 2000 onwards. as debt ratios in the corporate sector had risen significantly through the years of the stock market boom, signs of financial distress quickly surfaced as firms found that profits were not matching earlier expectations. overall resilience despite isolated weaknesses but in spite of the circumstances that i describe here, the eu banking sector ’ s financial health remained overall robust. the return on equity of eu banks peaked at 12 % in 2000. the sector's profitability subsequently declined for two consecutive years, reaching 8. 6 % in 2002. increased loan - loss provisions for corporate loans, reduced commissions and trading income from capital market - related business were mainly behind this fall. although the decline was substantial, overall profitability levels continued to be well above those recorded in the second half of the 1990s. in the course of 2003 profitability picked up again. banks ’ solvency levels remained relatively unaffected by the adverse events. thanks to these adequate financial buffers, banks were able to withstand the shocks in their operating environment. the aggregated total regulatory capital ratio continued to hover around 12 % throughout the period after 2000, which is well above the required minimum ratio of 8 % for individual institutions. although the overall picture was rather

lars nyberg : developments in the property market speech by mr lars nyberg, deputy governor of sveriges riksbank, at the seminar on properties, malmo, 2 september 2003. * * * i would like to begin by thanking you for the opportunity to come to malmo and speak about the riksbank's view of developments in the property market. of course, these developments are not only of interest to those of us present today. they are important to all people, as movements in property prices have significance both for the real economy and financial developments in sweden. when property prices rise, we feel more financially secure and increase our consumption, which leads to a rise in employment and growth. we might even borrow a bit more from the bank if we can. normally, there is no harm in this. but there is a limit, of course, to the burden of debt households can bear without giving rise to worrisome risks. should the debt of commercial property companies also swell, it could entail risks for the stability of the entire banking system, a point that was illustrated so well during the crisis at the beginning of the 1990s. on account of this, the riksbank monitors developments in the property market carefully. we usually divide it into two segments, which give rise to different questions and reflections. the first segment is the housing market. since 1997, housing prices have risen by just over 50 per cent, measured in current prices. the price boom has continued in spite of the generally weak economic activity of the last two years. this is a new experience which differs from previous business cycles, when prices have tended to recede during periods of economic decline. similar developments have occurred in other countries, for example in the us, england and holland. the situation could appear worrying, particularly given that the rise in housing prices has been accompanied by an increase in household indebtedness. the upsurge in prices has raised questions about the healthiness of this trend. are the price rises in the swedish housing market the result of a bubble? are the higher levels of household indebtedness sustainable? the riksbank's view is that the current price developments in the housing market do not reflect any speculative expectations of future price rises which would warrant the term “ bubble ”. nor is household indebtedness a bigger problem than usual for this stage of the business cycle. i will explain this in a moment. the other segment is the market for commercial property. here,