. 9 after having clarified this matter of principle, i will now discuss the development of household indebtedness in sweden. in 2011, the riksbank pointed out that a gradually rising repo rate, michael woodford presents a theoretical analysis of how such factors can be incorporated into a model for inflation targeting in woodford, michael ( 2012 ) “ inflation targeting and financial stability ”, sveriges riksbank economic review, 2012 : 1. sveriges riksbank. bis central bankers ’ speeches apart from stabilising inflation and resource utilisation, may also have the positive side effect of helping to slowdown household borrowing. credit growth in the household sector, which is closely linked to the development of the housing market, has gradually declined since 2010. household indebtedness is still high, but it levelled off last year. this suggests that the risks in this area are limited, at least at the moment. however, i believe that it will be important to monitor developments in the period ahead to check that new risks do not arise. figure 11. decline in lending to households credit growth, annual percentage change companies households - 5 - 5 - 10 - 10 source : statistics sweden conclusions today, i have discussed three aspects that were particularly important to my assessments and my stance when the repo - rate decision was made in february. two of these relate to the debt crisis in the euro area. my view is that it is taking too long to improve public finances and that the risks associated with a high level of indebtedness mean that the debt - ridden countries themselves must assume a greater responsibility for resolving their problems. the third aspect relates to the risks that can arise when the real interest rate is low for an extended period of time. this can, for example, lead to overheating tendencies or a too rapid increase in indebtedness. my conclusion is that, in the current situation at least, these risks are limited. this was one of the important reasons why i was able to vote for a repo - rate cut at the latest monetary policy meeting. a lively public debate is currently underway on a couple of the issues i have addressed here. this applies, for example, to the need for consolidation and which strategy is best for finding solutions to the debt crisis in the euro area as quickly as possible. the question of what role the central banks should play in counteracting an excessive expansion of credit and indebtedness is also often debated,

norway and the eurozone. it should also be said that there is a general consensus that the inflation target in sweden has been a successful one. financial stability as i mentioned earlier, many central banks today also have an objective to promote financial stability. while there is close to universal agreement on what price stability means, there has yet to emerge, some attempts none withstanding, a consensus on a working definition of financial stability. 1 given the problems in defining and measuring financial stability, why should we pay any attention to it? one answer is that we simply cannot afford not to do so, as financial crises carry with them huge costs to society. this was shown by events in japan and the nordic countries during the early 1990s, and in much of south east asia in 1997. in fact, one could even claim, that financial stability takes precedence over price stability, in the sense that the latter is quite irrelevant if the financial system is on the brink of collapse. an important difference between price stability and financial stability is that while responsibility for price stability rests squarely on the central bank, financial stability necessitates the cooperation of the central bank, supervisors and the government. however, the exact roles played by different authorities differ from country to country. another difference is the number of instruments available to policy makers. in the case of price stability, there basically exist one instrument ( either the short - term interest rate or the nominal exchange rate ). maintaining financial stability, on the other hand, requires a wide spectrum of policy measures, such as professional supervision, a legal framework that does not encourage “ moral hazard ” - type behaviour and crisis management plans. a recent complication is the surge in cross border banking activities, which means that the national authorities engaged in financial stability work, increasingly must work with their foreign colleagues. while the internationalisation of the banking industry holds the potential for efficiency gains, and increased household welfare, it has also added a score of new challenges. perhaps the most serious of these challenges is what has been termed the home - host problem. this can, in all its essence, be described as follows : suppose a bank, which is of marginal importance in its home country, sets up a branch in another country, which turns out to be systemically important for that country. given that the bank is not important in its home country, the home supervisors, who have responsibility for the supervision, might not think that the bank merits close supervision. however, for the host country, which will foot the