of law and property rights, fair and competent accounting and auditing, and arrangements for predictable and fair resolution of the problem of failing institutions. there must also exist an adequate institutional framework, e. g. for an efficient division of roles and responsibilities between different public and private institutions. a crucial part of the financial institutional framework, whose importance is sometimes neglected, is the payment system and its infrastructure. a country ’ s financial system is also susceptible to the vagaries of economic and political developments. for instance, while a fixed - exchange rate regime in certain circumstances tends to support financial stability in a country ( or group of countries – to refer to the european context ) there might be situations in which such a system could have the opposite effect. to underpin financial stability, economic developments should be sustainable, transparent and predictable. this also applies to political decisions, which affect the financial system directly or indirectly. completing the circle and reverting to my first observations on the increased global linkages, most countries ’ financial systems are influenced by developments outside the domestic economy. linkages come through different channels : macro economic events having international repercussions, for instance through international markets, or “ micro events ” such as via banks ’ cross - border affiliates. the fsap – an attempt to tie together the loose ends given the various pieces needed to shape and maintain a stable and efficient financial system we need a bird ’ s - eye view to see that they are all in place and that they do not counteract one another. the approach should also identify weak spots from which the financial system potentially might be destabilised. this need for a bird ’ s - eye view resulted in the creation of the fsap. the fsap is intended to cover the pieces i just mentioned – standards, preconditions and institutional setting and the interplay of these factors in the context of the domestic economy. the fsap is also expected to include implications of international interlinkages but i admit that this part has become gradually more difficult as a result of the increased scale, scope and complexity of financial institutions and markets conducting cross - border activities. to be blunt : how do you assess the effects on the swedish financial system from our internationally - active banks which practice centralised funding activities and even to some extent credit registration? how do you look at banks organised along product lines, while regulation and supervision mostly is national? this is the rationale for moving to regional fsaps in order to

##ysing how various developments affect overall stability ; or it could start from the individual countries and analyse how each country might be affected by influences from abroad – be it through their financial groups at home, abroad or through other channels, including the payment infrastructure such as regional exchanges. the analyses of a number of countries could then be added together to form a relevant region, which could be the eu, the euro area, the eea, some subset thereof or even one of these regions plus one or more financially important systems in the neighbourhood, such as switzerland. my leaning would be toward the second one. the first one, which we may call the pan - european approach, has tended to produce a lot of numbers on aggregates and averages in the financial stability analysis. no country wants to stick out in the assessment ; they hide behind these broad numbers. but you cannot identify weaknesses and vulnerabilities through averages. “ on average ”, banks ’ credit portfolios and capital ratios may be robust but an fsap should look for the outliers – the ones which will break first. whichever approach you select, you would need to include a detailed analysis of those major financial groups which cross the borders between the european countries and sometimes also operate outside the region. these groups are in many cases so large that they could influence countries both positively and negatively depending on developments. let me give you a recent example from my own country : icelandic investors have bought large stakes in swedish financial firms. the investments are rather small from the swedish point - of - view but significant for their parents in iceland. recently, there has been volatility in the icelandic financial and currency markets. luckily, the investments in sweden are doing very well and have rather contributed to strengthening the icelandic financial system. but in another situation the reverse could have been true – had the icelanders made these investments during the swedish banking crisis in the 1990s the swedish holdings would have contributed to weakening the icelandic economy. my point is that, in addition to analysing vulnerabilities in individual countries and general macroeconomic linkages between countries, you also need to look in particular at the major cross - border financial groups and financial infrastructure. the good news is that these are not so many, after all. of the approximately 8, 300 credit institutions in the eu, only nine are defined as truly pan - european and less than fifty have cross - border establishments in more than two countries. when assessing preconditions, regulation and supervision you