, which establishes the bounds for the operations of financial institutions. the parliament is responsible for legislation on financial operations, while the supervisory authority issues more detailed instructions. in many countries, including sweden, the experiences of the 1990s have paved the way for a thorough review of the legal structure of the financial sector. in this context, it is worth noting that laws and regulations today to a great extent are developed through international negotiations such as in the basel committee and, for us in europe, the eu. the role of the central bank in this process is the comfortable one of a knowledgeable observer, posing relevant questions in working groups and committees and pointing out inadequacies in suggested solutions. there is much to say about this process, but i shall have to leave it for a different occasion. 2. day - to - day oversight the second strand of financial stability work is the day - to - day oversight. this may be described as resting on three pillars : • the first pillar is the supervision of individual banks, • the second pillar is the surveillance of systemic stability, • and the third pillar is payment system oversight. the first pillar is clearly the responsibility of the supervisors, whether they are a separate fsa or, as in many countries, a department within a central bank. the supervisors collect data from the banks, analyse these data and make on - site inspections. prudential supervision performed by a competent authority must be the basis for all day - to - day oversight. the second pillar is the joint responsibility of the fsa and central bank. the division of responsibility is really one of perspective. while the fsa bases its work on individual institutions, the central bank looks at the banking system as a whole and attempts to assess the risks that could arise in it both in the short and the long run. of course, there is overlap in the tasks of the fsa and the central bank, but it is often fruitful to approach a problem from somewhat different angles. details are important, but looking at details you sometimes miss the overall picture. this, at least, is one conclusion we drew in sweden from the experiences of the 1990s. the third pillar of oversight is the supervision of the financial infrastructure. this is a relatively new task derived from the complicated technical and legal systems that handle all financial transactions today. the infrastructure is of particular importance to the central bank, since we would most probably have to provide emergency liquidity assistance if anything went wrong. the infrastructure is dominated by the systems for

the low inflation policy may therefore be said to be confronted by a test : the labour market is improving with falling unemployment and increasing capacity use otherwise. at the same time, there are imbalances in the sense that relative wages do not attract applicants for employment to the areas in the labour market where there are shortages. the challenge is to find a solution within the framework of the scope for pay increases created by the growth in productivity and inflationary expectations on a level with the target. make use of available opportunities sweden ’ s opportunities for regaining some lost ground in the prosperity league are good. our country has a population which has taken to new technology in the field of it more quickly than in many other countries ; computer use is widespread at workplaces and also homes. according to a sifo survey, 3. 5 million swedes surf the internet - almost half of the population aged between 12 and 79. no fewer than 2 million swedes surf every day. even more remarkable is the fact that almost 20 % of the age groups between 50 and 80 are active on the internet. together with some other countries, sweden takes the absolutely leading position with regard to the use of it, computers and mobile telephones. young new entrepreneurs are starting successful businesses within the new areas alongside giants such as ericsson. pharmaceutical research and biotechnology are other areas where sweden is well to the fore. sweden is investing more in research in proportion to gdp than any other country in the world. as the conditions are now very good with regard to the immediate economic trends that i mentioned to begin with, and as the structural changes in the swedish business sector towards new advanced fields of production are moving quickly, it would be a national misfortune if wage formation were to get out of hand due to the parties not being able to deal with imbalances in relative wages. consequences for monetary policy? what conclusions can be drawn regarding monetary policy? my intention with today ’ s speech is not to make new statements about current monetary policy. the intention is instead to create understanding for the balances that have to be struck and the risks that must be avoided in order for monetary policy to make a contribution to the positive development of the swedish economy. the role of the interest rate for demand of goods and services and inflation can be described as follows in a highly simplified way. a real rate of interest, which neither stimulates nor dampens demand, may be said to be neutral. demand then increases at the rate of capacity growth and inflation is stable