economic policy, e. g. economic growth and high employment. developments in household indebtedness and house prices can be significant in all these respects. when forecasting inflation, the riksbank tries to take account of the connection between indebtedness and developments in house prices, on the one hand, and inflation on the other. for example, it may be a question of judging how large an impact rising house prices have on household wealth and, at the next stage, on demand in the economy. these relationships are in no way simple or straightforward, and even though statistical studies show a clear correlation between these different variables, it is entirely possible that there are underlying explanations, e. g. sentiment in the economy, that could affect the relationships. in any case, when producing our forecasts, we do our best to estimate the effects of house prices and indebtedness. the riksbank also illustrates regularly the effects on the payment system of developments in house prices and household debt, mainly in the bank ’ s reports on financial stability. our assessment so far is that there are no signs that property prices are markedly out of balance. high growth in households ’ disposable incomes, low interest rates and a low level of housing construction, coupled with increased demand for housing, may to a large extent justify the price rises seen in the housing market at national level, as well as current debt levels. it is also possible that the increase in debt is partly an adjustment to an economy with - compared with before - better functioning financial markets, low inflation and expectations of relatively low interest rates in the future. most indications also suggest that the majority of households would be able to service their debt even if interest rates were to rise sharply. nor does it appear likely that banks and mortgage institutions would risk incurring losses that would appreciably affect their capital bases. this wasn ’ t the case either during the financial crisis at the beginning of the 1990s. while the banks ’ losses during the crisis were largely propertyrelated, they did not stem from lending against collateral in housing but from loans secured by commercial properties. and prices of commercial properties have this time not at all shown the same development as prices of residential property. on the contrary, they have fallen during the economic decline and have still not recovered. what remains then are the effects on the economy in general. in this respect it is perhaps first a question of whether the build - up in debt and developments in house prices should

institutions, which largely finance their activities by issuing bonds and certificates in the securities markets. the market is dominated by five mortgage institutions, which together account for around 99 per cent of all borrowing. the four largest mortgage institutions are subsidiaries of the four largest swedish banks, while the fifth, sbab, is state - owned. the mortgage institutions ’ annual reports show that as much as around 30 per cent of securities borrowing is carried out abroad, which suggests that there was already considerable interest among foreign players before the legislation on secured bonds was proposed. however, there are considerable differences between the institutions. some institutions have an explicit policy of raising half of their borrowing requirement abroad in their own name, while others manage their borrowing abroad via their parent bank, which issues securities in the banking group ’ s name so as to ensure the lowest possible borrowing costs. neither is it unusual for banks that own mortgage institutions to buy bonds issued by the mortgage institutions of competing banking groups. the reason for doing so is that banks are not allowed to use bonds issued by their own institutions as collateral when borrowing from the riksbank, while they are allowed to pledge bonds issued by institutions outside their own banking group. as a result, mortgage bonds are largely owned by the banks, which contributes to reducing liquidity in the mortgage market. there are several factors that affect the ability of companies to borrow in the market. these include, of course, the possibility to easily assess the borrowers ’ credit ratings and the quality of their assets. this is made easier if the borrower has an extensive contact network so that institutional investors are familiar with the borrower and its activities. building up and maintaining this type of contact network and credibility requires time and considerable resources. the swedish mortgage institutions have long established such contact networks, primarily in the swedish securities market, where the liquidity for swedish mortgage bonds is greatest. a rough measure of liquidity, the ratio of bonds sold and the stock of outstanding bonds, shows that bonds were sold around 4 times during one year in the swedish mortgage bond market. this can be compared with the market for swedish government bonds, where the corresponding turnover rate is around 7. the difference is not insignificant, and indicates that more can be done to create a more liquid secondary market for swedish mortgage bonds. the new legislation will create the conditions for improved terms for mortgage institutions and housing finance. however, the responsibility for making use of these conditions will lie with the banks and mortgage institutions themselves. a decisive factor as to whether the banks