There were in fact transitional regulations that initially meant that the banks were not able to calculate so liberally, but these were the regulations that would apply in the longer term and thus those that the banks and investors, and often the authorities, primarily focused on. Given that the banks, in Sweden and in other countries, only needed a small amount of capital, and given that it was often assumed that they were backed by government guarantees, it was highly profitable for them to take substantial risks. The banks themselves carried only a small part of these risks, while it turned out that the banks’ customers and the taxpayers had to carry the major part. In several countries – Spain, Ireland and Denmark for example, in addition to the United States – we have seen how substantial falls in the prices of the banks' assets, mainly in the form of mortgages, have led to major economic problems. The point is that the risk capital that the banks and their shareholders provide is limited to the value of the share capital. But society’s risks are greater than this. A mainstream assessment in economic research is that a national crisis in the financial system costs the economy around 60 per cent of GDP. In Sweden, this would be equivalent to over SEK 2 000 billion, or  BIS central bankers’ speeches  1  more than SEK 200 000 per Swede.
The Swedish banking system is special It is thus important to put the Swedish banking system into perspective. The total domestic and foreign assets of the four major banking groups amount to 400 per cent of Sweden's GDP. In other words, out banking system is huge. Relatively speaking, it is on a par with the banking system in the United Kingdom, for example. The Swedish banking system is also highly integrated, which means that problems in one bank can easily lead to a crisis of confidence for the entire system. If we were hit by a financial crisis, the costs to society could thus be very high. With this in mind, I intend to focus in more detail on two vulnerabilities in the Swedish financial system that are interlinked. The first is the indebtedness of the Swedish households. The second is the banks’ funding in foreign currencies and their dependence on the currency-swap market. The Swedish mortgage market has structural weaknesses An issue that has been widely discussed recently is the indebtedness of the Swedish households and the risk of a fall in housing prices. Experience in several countries has shown that indebtedness and the development of housing prices are the main explanations of why some countries are hit harder than others during economic crises.