’ s lowered the credit ratings of several danish banks bis central bankers ’ speeches and loan loss insurance became more expensive. moody ’ s justified this change by claiming that the implicit state guarantee had decreased. major swedish banks have a large share of market funding in foreign currency in addition, the major swedish banks receive a large share of their funding – about half – from the financial markets. in addition, almost half of this market funding is in foreign currency. the integration of financial markets is basically a good thing. much of foreign currency borrowing is necessary to meet lending needs. and market funding can be good for spreading financing risks. but at the same time, the risk of imported shocks increases. borrowing in foreign currency for lending in swedish kronor also increases dependence on the efficiency of the swap market. the liquidity risks taken by the major swedish banks are also still larger than the european average. unexpected negative events or disruptions on the international financial markets can thus cause considerable problems for the major banks and ultimately for the swedish economy. swedish banks have low risk weightings the low risk weightings in sweden are particularly important for the basel regulations on capital adequacy. at present, of course, the banks can calculate risk weights using internal risk - classification models based on historical data on loan losses. from an international perspective, these internal models generate very low risk weights for swedish mortgages. the question is how well the last 20 – 30 years of history reflect the risks we may face in the future. history warns us of low resilience in the financial sector even before the last crisis, we in sweden had already seen warnings of insufficient capital levels. the credit deregulation of the mid - 1980s coincided with the highest leverage ratios in swedish banking history. as some of us remember, lending increased almost explosively during the second half of the 1980s. the low solvency of the 1980s created strong financial leverage that facilitated the excessively rapid growth of credit. as most of us remember, this ended in disaster. the low level of solvency also made the banks far too vulnerable when growth slowed down. the crash at the start of the 1990s led to a banking crisis with three years of negative growth and steeply rising unemployment and public debt. as we all know, leverage can work both ways. resilience is needed in uncertain times only a few years ago, we came close to seeing history repeat itself. in late 2008 and early 2009, sweden stood on the brink of a new banking crisis. the

now instead be targeted at achieving long - term stability and sustainability in public finances. corresponding changes in economic policy had been made in many other parts of the world. it is often said in the economic debate that one consequence of the change in system was that “ the riksbank was given responsibility for stabilisation policy ”. as it is not always clear what is meant by this exactly – the interpretations appear to vary depending on whom is asked – it may be worth providing a brief summary of the inflation - targeting policy we conduct. the riksbank ’ s primary objective is to maintain price stability. this task often goes hand in hand with a stabilisation of the real economy ; if demand in the economy develops in line with the long - term potential, it will often contribute to a stable development in inflation. however, inflation does not solely depend on our domestic resource utilisation ; it is also influenced by supply shocks, international inflation, exchange rate trends, and so on. in certain situations it is necessary to find a balance between stabilising inflation and stabilising the real economy, for instance, when a severe cost shock pushes up inflation while the real economy is weakened. the typical result of weighing up these considerations is that – unless it would threaten credibility – the central bank will allow much longer time for inflation to return to target level than if the rate of price increase had been pushed up by increased demand. the negative effects on the real economy will therefore be much less significant than if the central bank had merely reacted to the higher inflation and used an aggressive policy to rapidly bring inflation back in line. considerations of this nature have been made by the riksbank on several occasions during its decade of inflation targeting. there are examples from the end of the 1990s when deregulation contributed to very low inflation and the riksbank chose not to fully utilise the scope for interest rate cuts that might been offered by a stricter interpretation of the inflation target. there are also examples of the reverse from 2001 and 2003, when temporary supply factors pushed up inflation and the riksbank did not react by raising the interest rate. to be even more explicit ; when we formulate our policy we have on several occasions deliberately chosen to allow deviations from the inflation target for short or long periods of time. when the consequences of the deviations have been lower interest rates than would have been the case with a stricter interpretation, there has been practically no criticism. however, it has been rather