The bank can count on being able to invest any surplus remaining at the end of the period in the market at a rate close to the policy rate. It is possible that the formulation of minimum reserve requirements can affect the need to stabilise the overnight rate in periods of financial turmoil. As it does not normally entail any additional cost, there may be an incentive for the banks to increase their deposits with the  BIS Review 51/2008  5  central bank at the beginning of the minimum reserve period when there is great uncertainty in the interbank market. This can entail a reduction in supply and thus rising interest rates in the interbank market. Recent developments Since last summer, developments in the financial markets have been turbulent. The problems were triggered in the US subprime market, which caters to borrowers with low credit ratings. The problems actually began back in 2005 when rising interest rates affected many borrowers. When loans were renewed at new, higher interest rates the loan costs for these borrowers rose substantially. And when property prices fell, there was no scope to mortgage the house so householders could borrow their way out of their problems. Many borrowers could no longer make the interest and mortgage payments on their loans. This caused major loan losses for many mortgage institutions and a general unease among investors. The loans had moreover been repackaged into what are known as structured products and sold on to investors around the world.
Stefan Ingves: Policy rate setting and the monetary policy steering system Speech by Mr Stefan Ingves, Governor of the Sveriges Riksbank, at Handelsbanken, Stockholm, 28 April 2008. *  *  *  During the autumn and spring the international financial markets have been marked by considerable uncertainty and turmoil. The situation has caused several central banks to take extraordinary measures, while for instance the Riksbank has not seen any reason to do so. One reason why central banks have acted differently is that the financial crisis has affected different countries to differing degrees. In Sweden we have not observed any major problems as a result of the financial crisis. This is linked to the fact that Swedish banks have not been exposed to the US subprime market to any great extent. Nor has there been any distrust of Swedish banks, which have a good capacity to deal with unexpected negative events. Ultimately, it is a question of a broad view that Swedish banks do not have problems. Another reason why central banks have acted differently is the differences in monetary policy steering systems between countries. It is therefore important to create an understanding of how the Swedish monetary policy steering system works. In my speech today I will talk about monetary policy from the production of the background material for making a decision until the decision has been implemented. I will focus on how an interest rate decision is put into practice.