the 500 largest companies were valued at almost 45 times the annual earnings. valuations were far more inflated than just before the major crash in 1929. although we do not have historical earnings data for the swedish stock market to compare with the us figures, there are many indications that valuations here were also very high historically. the correction of share prices has admittedly occurred to the accompaniment of corporate scandals and security policy risks. but even so, the fall should be seen above all as a consequence of the unprecedented rise and the high valuations at the beginning of 2000. an orderly adjustment i repeat that the course of events today differs in many respects from what happened in the world economy in the late 1920s and early 1930s. at that time, economic policy was tightened, free trade was restricted and banks collapsed. global economic activity went into a downward spiral of deflation, falling output and decreased employment. thus, the drop in share prices was only one of several ingredients in the mixture of events at that time. although world economic demand has been subdued and the recovery in activity is now rather sluggish, the fact remains that the adjustment after the latest upward phase and the high share values has been comparatively orderly. overall economic policy is expansionary - not restrictive - in many parts of the world. with some minor exceptions, there have been no extensive political interventions that impede international trade. moreover, the financial system has proved to be highly robust. the maintenance of an efficient payments system and the supply of credit from central parts of the financial system are, of course, important conditions for a further successive economic recovery. in the past it is disturbances in precisely these two functions that have caused real economic developments to follow paths that resulted in falling output and deflation. for an illustration of this we need only go back a decade or so to sweden ’ s own bank crisis. the fact that the financial system has been comparatively stable in the present situation has a variety of explanations. one is more highly developed methods for risk management. another is that the sophisticated markets for derivatives have made it possible to spread risks more efficiently to those who are better equipped to carry them. a third is that banks, financial institutions, legislators and supervisors have drawn important lessons from the periods of turbulence in the 1990s. a fourth, more direct explanation is that the highly inflated share values have not been used to any sizeable extent as collateral for bank loans. the interim reports from swedish banks have also confirmed that the swedish financial system is developing in a stable manner

and systemic stress. this is being mainly advanced through our ongoing work in recovery and resolution planning, as well as testing and improving our operational frameworks for managing crises. in a speech delivered in december 2021 on the key attributes, klaas knot, chair of the financial stability board, wisely refrained from claiming victory when it came to the question of whether the key attributes have successfully solved the too - big - to - fail problem. at that time, we had yet to experience a failure of a global systemically important bank ( g - sib ) since the global financial crisis. since then, the banking stress episodes earlier this year that also engulfed credit suisse, have provided much fodder for reflection. i have no doubt this will include practical reflections on operational aspects of the key attributes. our own reflections on lessons learnt from past crises are helping to guide the path ahead in malaysia for recovery and resolution planning. these reflections have continued to sharpen our perspective on how resolution and recovery planning work together in malaysia. recovery and resolution planning : interconnected strategies as already mentioned by pidm chief executive officer, rafiz azuan abdullah, recovery and resolution planning in malaysia are intrinsically linked. while they approach the management of stress from different lenses, the credibility and feasibility of resolution plans will be critically informed by key components of recovery plans – particularly the strategic analysis, scenario analysis and recovery options. a well - executed recovery plan should reduce the likelihood of a financial institution having to enter into resolution. our approach therefore builds on the same information sets contained in recovery plans to provide key input into the development of credible resolution strategies by pidm. in the coming months, we will be engaging banks on the first batch of submissions of their recovery plans. a key focus of these engagements will be on ensuring that the strategic analyses are sufficiently robust, and stress scenarios developed by banks are sufficiently severe and diverse. this is consistent with our expectation for banks to manage risks at a level commensurate with their capacity to recover from severe stress events that could threaten their viability. if the recovery planning process indicates that recovery capacity is unlikely to be met, then banks will be expected to consider business and operational measures to reduce their vulnerability to shocks. we recognise that for some banks, this could mean altering their business direction. we believe this is consistent with the primary accountability of financial institutions, and not resolution authorities in the first instance, to ensure that they are able to withstand periods of severe stress. 2 / 5 bis