lars heikensten : swedish banks in an international perspective speech by mr lars heikensten, governor of the sveriges riksbank, royals vintertradgard, grand hotel, stockholm, 10 november 2005. diagrams for this speech can be found on the sveriges riksbank ’ s website www. riksbank. com. * * * swedish banks'competitiveness i would like to begin by thanking the bankers'association for inviting me to participate in this panel discussion on swedish banks'competitiveness. before i set about giving my view on the matter, i think it is important to stress that there are several different perspectives on competitiveness and competition. so, the conclusion will vary depending on the angle from which you look at the issue. the composition of the panel reflects these different perspectives well, which should guarantee an interesting discussion. i would like to define a bank ’ s competitiveness as a measure of how efficient the bank is at providing a given quantity of financial services at a certain level of quality. for the riksbank, the competitiveness of swedish banks is important both from a stability point of view and an efficiency perspective. competitive banks have greater resilience to different kinds of pressures regardless of whether they stem from increased competition or poorer economic performance. they also are more efficient and can provide more and better financial services at a low cost. how to measure competitiveness, though, is by no means self - evident. it is fairly uncomplicated to observe business profitability and cost efficiency in a bank with the aid of measures such as return on equity and the c / i ratio. but a high return on equity and low c / i ratio is not necessarily a sign of an efficient banking sector, but can just as easily indicate weak competition and high margins. similarly, from an economic point of view it is hazardous to place too much trust in the equity market ’ s valuation or a rating agency ’ s credit rating since these partly represent a different perspective. for example, for investors it is only positive if a bank – all other things being equal – operates in a market where competition is low and margins are high. against this background, it is important to supplement the business analysis with an assessment of the quality and the price of the financial services provided by banks. i suppose the best indicator of the quality of a bank ’ s service range is how well the bank ’ s services fare in the competition from other banks and financial institutions. if the

affect our economy and society. however, the cost of addressing these changes is but a fraction of the cost that we would have to pay, if we allow climate change to continue unabated, without taking any preventive action. at the same time, considering that the occurrence of extreme climate events in the future cannot be excluded, policies for mitigation and adaptation should be viewed as contingency measures against such an eventuality and, as such, are advisable irrespective of the results of the cost - benefit analysis. at first glance, the current adverse economic conjuncture appears to constrain the financing of mitigation and adaptation policies. to the extent, however, that these policies can be exploited as an opportunity for new lines of economic activity and for growth, they can be part of the strategy for an exit from the crisis. in other words, the adoption of mitigation and adaptation policies, although appearing to be hampered by the grave economic problem faced by greece today, can in fact contribute to its solution. the study not only demonstrated the need for action to deal with climate change, it also underscored the need to pursue research further. in this light, we, at the bank of greece, bis central bankers ’ speeches intend to continue with the effort of both disseminating information and contributing to research. the extremely useful study presented here today therefore marks only the starting point, the first step of an ongoing effort, which will be enriched and expanded as it proceeds. the time horizon set in this study extends well beyond the current adverse conjuncture and illustrates how firmly we believe in the future of our economy, as well as in the need to address its problems seriously. i consider that a happy outcome of our initiative is that it has offered an opportunity for cooperation to experts from different scientific disciplines, who for the first time joined forces in the study of such a complex problem. this constitutes a very positive example for the greek scientific community. in closing, allow me one final word. despite my opening remarks, some may still wonder why the bank of greece, at a time like this, should concern itself with climate change anyway. my answer to them is that the publication of a report analysing the impact of climate change on the greek economy and outlining policy measures to deal with it over the next ninety years is also a clear - cut response to the outrageous and ridiculous scenarios recently going around. let me point out that all of the estimates in