##economic indicators accordingly play an important part not only in the assessment of future inflation but also in the analysis of payment system stability. experience has shown that a balanced macroeconomic policy and stable prices reduce the risk of shocks that threaten financial stability. analyses of these three aspects are presented twice a year in our financial market report. the riksbank is accountable for oversight and the financial supervisory authority for supervision. this means that the riksbank is primarily concerned with the development of a system or a market, while the fsa considers the situation in each institution as well as the system ’ s overall stability. but as the dividing line between these two functions is blurred in practice, it is important that these two authorities cooperate closely. such cooperation is indeed a hallmark of our interaction, from senior management down to divisional staff. note, therefore, that while oversight is an important riksbank function, the direct supervision of sweden ’ s financial system is not our concern. our legislators have assigned the latter role to the financial supervisory authority, which accordingly has the possibility of directly pointing to shortcomings in particular institutions. the riksbank may nonetheless detect problems at an early stage because they are likely to leave their mark on the payment system, which is the riksbank ’ s concern. our chances of influencing the course of events then lie in contacting the bank ’ s executives and informing the financial supervisory authority. our financial market report can no doubt also play an important part in exerting a more continuous influence. in the longer run, the riksbank can also contribute to stability through international collaboration, as well as by participating in sweden in legislative work and the structural adjustment of various systems. undervalued credit risks — a recurrent phenomenon one aspect of the riksbank ’ s oversight of financial stability in sweden has been the analysis of the run - up to the bank crisis here and the possible causes of crises in other parts of the world. the causes and course of the various crises have differed in some respects but they do present many similarities. many of them were preceded by a period of rapidly rising asset prices and a strong expansion of credit. this period ended with an abrupt reassessment — a jolt that altered risk assessments and led to heavy losses for those involved. signs of economic problems meant that the supply of credit virtually ceased. it seems that the stronger the credit supply in the first period, the more serious were the effects in the second phase, with decreased production and rising unemployment. another

information on the type and quality of claims underlying structured products would also be helpful. at the same time, i would like to emphasise that ratings are no substitute for a broad - based risk assessment by investors, who should develop their own risk analysis, as randall kroszner from the us fed recently pointed out. thus, investors will have to weigh the benefits of certain instruments against the cost of acquiring the data and expertise necessary to assess them properly. sellers may respond by putting instruments on offer that are less complex and more transparent. as regards the transparency of hedge funds, it is essential to strengthen market discipline and to enable counterparties to make a correct assessment the risks involved in dealing with hedge funds. in may 2007, the financial stability forum published a list of recommendations on hedge funds to address potential systemic risk, which is clearly a step in the right direction. the recommendations include strengthening the management of counterparty exposures and the development of enhanced sound practice standards for hedge fund managers. the g7 have endorsed these recommendations. a group of uk - based hedge funds under the leadership of sir andrew large have announced plans to introduce standards based on the industry ’ s best practices. i think this is a very promising project. in the us, the government has launched two working groups on hedge fund transparency. we expect to see their recommendations by the end of this year. concerning sovereign wealth funds greater transparency should be in the interests of the investing countries as well, because they would also benefit from a reduction of uncertainty in the financial markets. moreover, a commitment to best practices would reassure the target countries and could help to prevent protectionist tendencies. the dialogue between investing and receiving countries should definitely be intensified. the formulation of and adherence to best practices in that area seems to be a promising route to follow, possibly with the involvement of the imf and the oecd. in any event, we should not call into question the principle of free capital movement and should avoid resorting to protectionism. last but not least, i would also like to point to the lack of aggregate statistics on credit risk transfer. transactions are mostly carried out over - the - counter. comprehensive and reliable data, say, on the overall volumes of transactions, exist only for some market segments. in particular, data on the cdo market are far from sufficient. in other areas, for example, with regard to cdss, different sources publish figures that are difficult to compare. they are often based on surveys carried out by the private