to see housing as a financial asset, as opposed to somewhere the buyer intends to live. these countries have so - called buy - to - let markets, which involves buying a second house or apartment with a view to letting it. buyers hope that the property will rise in value in much the same way as a share, yielding a return in the process. in dublin the situation has got to the stage where rents have dropped in recent years, which should have resulted in falling house prices. but prices have continued to climb. it is likely that a number of markets contain elements of a speculative bubble, where price developments bear no relation to the fundamental factors that normally affect supply and demand and instead are driven by expectations of future price increases. commercial property prices in sweden at the beginning of the 1990s gave us a clear example of how such a market works. in sweden we don ’ t see any indications that speculation is of any great significance for the formation of housing prices. i think there ’ s reason to wonder whether such imbalances really can arise in the swedish market. swedish people live in their houses or apartments. perhaps the swedish tax system, both as regards property tax and tax on rental income, has made it unprofitable for households to buy to let. australia, for example, has considerably more favourable tax rules. so, to sum up, it seems that both housing prices and household borrowing in sweden are fairly well explained by the fundamental factors that usually govern supply and demand. this doesn ’ t mean of course that prices cannot fall ; far from it. uncertainty about income developments and rising interest rates could, for example, curb demand at the same time as the supply increases when the construction of new homes picks up. in that case we should expect weaker price increases or even a drop in prices. but the prices shouldn ’ t fall as much or as fast as when demand contains obvious elements of speculation. financial stability so what is the outlook for the stability of the swedish banking system? what would happen if unemployment or interest rates were to rise? would we see a fast increase in the banks ’ loan losses as during the banking crisis? we have concluded in several financial stability reports that there indeed is cause for vigilance as regards developments in household debt, but that we don ’ t believe that these developments are a threat to the stability of the banking system. there are several reasons for this. one is that just mentioned, namely that we don ’ t see any obvious speculative tendencies in the housing

only one instrument, namely monetary policy. instead we became an early adopter of what was then the relatively new concept of inflation targeting, at the same time as the exchange rate was allowed to float. sweden had also been hit by a severe bank crisis and we saw that the central bank should play an important role in the effort to prevent anything like this happening again. these became our two main tasks, just as they have become in many other countries. maintaining price stability and preventing financial crises – monetary policy and financial stability. both of these tasks required three things that in combination with each other make great demands of an organisation – accountability, openness and confidence. these prerequisites are required not least in the field of financial stability, where we were not given any operational tools to use in peacetime ; we were expected to be able to influence behaviour through our analyses and communication – moral suasion. bis central bankers ’ speeches how should these tasks be achieved? so, my example of how to define a useful central bank began with the question what, that is what tasks should we perform? obviously, however, we must also ask ourselves how we should perform these tasks. regarding the how, i will focus on two issues : the staffing and competencies of the internal organization and the governance structure. the journey that we have travelled since the 1990s has entailed building up know - how and expertise for our main tasks and focusing our operations on these tasks. in order to fund this costly investment in competence and communication and to focus the organisation on the main tasks, all of the other operations of the riksbank have been reviewed and made more efficient. a clear illustration of this renewal and redirection of competence at the riksbank is that the number of employees has fallen significantly in this period from 1, 100 – 1, 200 including companies, or 750 excluding companies, to the current level of 350, while personnel costs are at approximately the same level as previously. today, more than 70 per cent of our employees have an academic degree and we have some 50 phds. i am sure that the same tendencies can be seen in other central banks. the concrete effects of this in our case are that we have reduced our involvement in cash management to a minimum, subcontracted the production of statistics, rationalised our administration and so on. in other words, we simply decided to perform only those tasks that we had the potential to perform better than anyone else. only around 5 per cent