urban backstrom : the swedish economy speech by mr urban backstrom, governor of the sveriges riksbank and chairman of the board of directors and president of the bank for international settlements, to the swedish shareholders ’ association, orebro, 30 october 2001 * * * first a word of thanks for the invitation to come to orebro and discuss matters to do with the swedish economy with you. it is now a fortnight since the riksbank presented this year ’ s third inflation report. some more statistics have been published in the meanwhile but the information they contain does not point to anything particularly new. so today one can hardly arrive at an assessment of economic developments in sweden one to two years ahead that differs all that much from the picture outlined in the report. those of you who want to know more about our assessment should consult the riksbank ’ s website, www. riksbank. se. the whole report can be downloaded, as can all the figures on which the tables and charts are based. diagram 1 : the ” new economy ” concept in swedish media. ( number of hits ) 2001 jan. oct. sources : mediearkivet and presstext. there are, however, a couple of questions concerning the swedish economy and the outlook in the somewhat longer term that i should like to dwell on here today. diagram 2 : ” the it - bubble ” affarsvarlden : it - index index nasdaq : nasdaq : composite dow jones : industrials usa dow jones industrial average, close daily [ index 1996 - 01 - 02 ] sources : hanson & partners ab. usa nasdaq composite index, close daily [ index 1996 - 01 - 02 ] one is what has happened to the discussion about the “ new economy ”. swedish media are mentioning the subject less and less ( diagram 1 ). i believe that mirrors how people ’ s interest in general has waned. and considering how rapidly and extensively prices have fallen for it and telecom shares, one is inclined to the view that all the talk about the third industrial revolution was really something of a dead end ( diagram 2 ). that leads on to my other question, namely the part that technological breakthroughs play for corporate profits and thereby for the return on equity. where did the “ new economy ” go? concerning my first question, perhaps it is not so surprising that we now hear less and less about the “ new economy ” than we did last year. share prices for it and telecom

will be right, i envisage two possible ways forward for the major swedish banks, both of which represent extremes. the first strategy would be based on the banks ’ proven proficiency in terms of organisation and distribution, and to refine this strength and also become better at peripheral advisory services. fewer resources would be invested in product development and risk - taking – products can easily be copied and risks sold on to other, hungrier investors. the second strategy would instead be to rediscover what you could call “ classic ” banking, in other words healthy risk - taking underpinned by better knowledge about certain risks and conditions than the market in general. as long as higher loan losses and larger earnings fluctuations are kept at a bearable level and are compensated for by higher margins, then risk - taking in itself is not bad business. however, as a central bank governor i do not want to inspire the banks to take on higher risk but instead would encourage them to make use of the opportunities in today ’ s financial markets to repackage and spread risk, but like i said that is a different perspective. 4 / 4