nonetheless clear, discount in relation to the european banking sector. the possible reasons for such a valuation discount are either that the expected profitability is lower for swedish banks or that they are judged to be riskier than their european counterparts. i think, though, that the latter hypothesis that swedish banks are comparatively risky can be rejected – swedish banks ’ high credit ratings, low loan losses and stable earnings tend to suggest the opposite. in other words, it seems as if the equity market is sceptical because it judges swedish banks ’ potential for improvement or growth to be limited. the assessment of swedish banks ’ growth potential as limited has several possible explanations, which are more or less benevolent depending on whom you ask. swedish bank managers sometimes claim that the competition in the swedish banking market is fierce and that it is easier to generate earnings abroad. foreign bank analysts prefer to emphasise the relative smallness and maturity of the swedish and nordic banking market – the major structural deals have already been done and all households already have a home loan. however, bank managers and analysts seem to agree that the potential for improving return on equity is limited. to sum up, we can conclude that swedish banks are neither more nor less profitable than their european competitors. while swedish banks are cost - efficient, unfortunately they are less successful when it comes to generating earnings on services other than lending. it reminds me in some ways of the swedish football team before zlatan ibrahimovic and henrik larsson blossomed into the stars they are today – disciplined and effective in defence, but fairly lacking in goals and imagination in attack. the structure of the swedish banking sector so, is swedish banks ’ average profitability and smaller valuation discount a result of their inability, despite their efficiency, to benefit from higher margins due to tough competition, or is it because the banks operate in an oligopoly and are incapable of developing new, profitable products. in the former case the relatively low profitability is a symptom of an efficient and competitive banking sector. but in the latter situation the authorities should be concerned, while investors possibly can see interesting but risky development potential. the swedish banking sector was one of the first in europe to be consolidated, largely because the banking crisis speeded up the restructuring process. the consolidation enabled swedish banks at an early stage to rationalise overlapping branch networks and to reduce staff numbers. even though several eu countries now have caught up with or even passed by us in terms of consolidation, the swedish banking sector stands out by having the

financial turbulence is the greatest since the depression and that the downturn in the world economy is the largest since the second world war. unemployment in the united states, for instance, has risen from around 4 per cent to more than 10 per cent in just over two years. the percentage of us households experiencing payment problems is the largest ever noted and millions of households have been forced – and probably further millions of households will be forced – to hand over their home to the lender for compulsory sale. in sweden unemployment has risen much less during the same period, but it is now at just over 8 per cent, the highest level noted for more than 10 years. a further argument in favour of central banks preventing excesses in asset prices is the risk of what is known as moral hazard. that is, that risk - taking will increase if there is an expectation that the government will always bail out the financial sector when bubbles burst, but will remain passive while they are building up. a monetary policy that is characterised by leaning against the wind may reduce this tendency. if the central bank acts more symmetrically ( that is, not merely sweeps up after the crisis but also tightens policy when a bubble arises ), it may encourage more responsible behaviour by investors and thus reduce the risk of new crises arising. scope for a more active policy my opinion is that in the light of the severe impact this crisis has had on the economy, there is justification for central banks being more active in reducing the risk of financial bubbles arising. however, i am dubious about a policy where the interest rate is used not merely to stabilise inflation and resource utilisation, but also asset prices. this would quite simply be too many aims for one single instrument. however, i do feel that it may be important to take into account indications that a bubble is building up when we make our monetary policy decisions. if these motives for a tighter monetary policy are communicated clearly, it should increase the general awareness of the risks with financial imbalances. i also consider that one should examine the possibility to increase the instruments at the disposal of central banks so that other measures than raising the policy rate can be taken when the risk of financial bubbles is assessed as high. however, it is necessary to analyse very carefully what the consequences of such an increase would be for conducting monetary policy before one takes a stand on this issue. measures that influence credit granting and interest rate spreads in different ways have an impact on the transmission mechanism for the actual interest rate