exempt from this stay. the change meant that all of the complicated and often risky mortgage securities could be used as repo collateral just when the securities were growing rapidly and just prior to the bursting of the housing price bubble. one of the sources of instability during the crisis was repo runs, particularly on repo borrowers using subprime mortgage - related assets as collateral. essentially, these borrowers funded long - term assets of relatively low quality with very short - term liabilities. therefore, to improve the stability of the shadow banking market, the bankruptcy law for repo collateral should be rolled back to the pre - 2005 rules and eliminate the automatic stay exemption for mortgage - related repo collateral. this would discourage such activity and tend to reduce the potential instability that is associated with repo runs. term wholesale funding would continue to be provided by institutional investors such as mutual funds, pension funds and life insurance companies. overall, these changes to the rules for money market funds and repo instruments would increase the stability of the shadow banking system because term lending would be less dependent on “ demandable “ funding and more reliant on term funding, and the pricing of risk would reflect the actual risk incurred. conclusion the proposal i am placing before you today will not take all risks out of the financial system. reasonable risk is, in fact, part of the financial system and essential to our economic success. however, the proposal will improve the stability of the financial system by clarifying where risks reside ; improving the pricing of risk ; and, thus, enhancing the allocation of resources within our economic system. it also will promote a more competitive financial system, as it levels the playing field for all financial institutions. and finally, it will raise the bar of accountability for actions taken and, to an important degree, reduce the likelihood of future bailouts funded by the american taxpayers. bis central bankers ’ speeches

##preciation of sweden ’ s currency, but during 1993 the continued fall in international bond rates meant that swedish interest rates also moved down to levels that were comparatively low. together with the riksbank ’ s reduction of its instrumental rate, this gave the monetary conditions a stimulatory turn. it also helped to stabilise both the economy and the banking system. lower market rates eased the fall in asset prices, lightened the burden of servicing private sector debt and mitigated the negative impact on the financial system. rescuing the banking sector was necessary to avoid a collapse of the real economy. there is no evidence that a credit crunch developed, though anecdotal information did suggest that creditors became more restrictive. i shall be returning shortly and in more detail to how the banking problems were tackled. in 1994, the major budget problems and the expansionary monetary conditions rebounded. inflation expectations began to move up in many parts of the economy and when interest rates increased worldwide in the spring of 1994, bond rates in sweden rose much more than in other countries - from just under 7 per cent to over 12 per cent in a few months. this was accompanied by a further weakening of the exchange rate to levels that were appreciably below any reasonable assessment of the real equilibrium rate. the situation called, in other words, for an economic policy realignment - - for what we can call aftercare - - once the acute financial crisis had been checked. a major consolidation of government finance was launched, accompanied by a tightening of the monetary stance which demonstrated that the 2 per cent inflation target was to be taken seriously. in time, this course has enhanced economic policy ’ s credibility and led to more permanent economic stabilisation. management of the bank crisis to those of us who were working on the initial banking problems it was soon clear that the crisis in swedish banking could become very serious. in spring 1992, preparations were therefore made to cope with a variety of conceivable situations. later we found that our worst - case scenario was on the verge of happening. looking back, one can see that in the course of the crisis the seven largest banks, with 90 per cent of the market, all suffered heavy losses. in these years their aggregate loan losses amounted to the equivalent of 12 per cent of sweden ’ s annual gdp. the stock of non - performing loans was much larger than the banking sector ’ s total equity capital and five of the seven largest banks were obliged to obtain capital contributions from