right method to use, as it does not solve the fundamental problem, namely incorrect assessments of credit and risks and the lack of capital in the banks to cover losses. furthermore, i can see a number of risks if this proposal were adopted, although i will return to that later. i would first like to accentuate the widespread and laborious work carried out for many years, on both a national and international basis, to promote stability and prevent crises from arising, but without impairing the functioning of the markets. experience shows that a necessary condition for avoiding crises is to pursue a fiscal and monetary policy that is aimed at creating stability and that inspires confidence. the common denominator for countries that have experienced financial crises is that the problems were based on mistakes in economic policy and deficiencies in regulatory frameworks. the financial market is often merely the messenger illustrating the fundamental problems. it is important that the choice of exchange rate regime is in line with the economic policy pursued and with the capacity of the economy to adapt. countries that have experienced currency crises during the 1990s have had fixed, but adjustable, exchange rates. today, therefore, an increasing number of countries choose to have either floating exchange rates with inflation targets, or completely fixed exchange rate regimes, such as currency boards. experience also shows that it is necessary to have a general regulatory framework that is applied properly, and that contains norms and institutions, in order for both national and international financial markets to function well. countries therefore cooperate in international organisations, such as the bis, the central banks'organisation in basel, to work together on producing norms for suitable regulations and norms in various fields important to financial stability. great progress has been made in this field in recent years, both in agreeing on norms and implementing them. for instance, norms have been produced for payment systems, accounting and auditing, bankruptcy legislation, transparency in fiscal and monetary policy and measures against money laundering. when i was the nordic - baltic representative on the imf's executive board, we worked hard to establish norms for correct and detailed reporting of economic statistics. the world bank, the imf and other organisations support countries wishing to adapt their legislation to meet the norms, by assisting with expert help. several swedish experts take part in this work. it is in the interests of all nations to apply these jointly agreed norms, as this reduces the risk of financial crises. in addition, countries that do not follow the norms will find it more difficult to borrow on the international capital market,

, the banks ’ mortgages were given a risk weight of 50 per cent. a bank ’ s risk - weighted assets were then calculated by multiplying the value of the respective type of asset by the respective risk weight. basel i meant that the banks should have capital exceeding eight per cent of the bank's risk - weighted assets. this requirement still applies, although the content of both the banks ’ capital and their risk - weighted assets have changed over time. basel ii and iii entailed more risk - sensitive capital requirements and increased model risks at the beginning of the 1980s, several countries deregulated parts of their credit markets. as a result, the banking systems in many countries rapidly became more complex and even more internationally interlinked than before. new types of more complex financial instrument were introduced. moreover, new and more advanced methods for measuring risk and risk management were developed and refined by most of the banks. many agents, including the basel committee, assessed that basel i needed to be reworked to become more risk - sensitive and to better reflect developments in the banks and in society. the banks were keen on pushing this question as they wanted to use their own methods for calculating capital requirements. in 2004, the so - called basel ii accord was published. this regulatory framework was incorporated into swedish law and in many other countries at the beginning of 2007. one of the main differences with regard to basel i, was that basel ii made it possible to apply different methods to calculate risk - weighted assets and capital requirements. as you probably know, some banks were able, after approval by the financial supervisory authority, to use so - called internal models to calculate their risk - weighted assets. this reform was intended to increase the link between the banks ’ capital requirement and their actual risks, which was also largely the case and thus generally improved the banks ’ risk management. 4 however, the use of internal models also entailed a risk that the banks ’ calculation of the capital requirements would not reflect the actual conditions. the risk that the banking system would not have sufficient capital to manage the risks arising from the banking operations thus increased. as the banks themselves were given the opportunity to influence their capital requirements, their incentives to underestimate the risks and thus reduce the capital requirements, increased. it is also difficult to determine how much capital a bank actually needs to manage a crisis situation. soon after the basel ii accord had been reached, the major international financial crisis broke out with the bankruptcy of the us bank lehman