When the Swedish currency depreciated, the borrowers could not repay the higher loan values because their revenue stream was in local currency. The banks believed themselves to be hedged against the foreign exchange risk since they were funded in the currency of the loans given, but they failed to see the corresponding increased credit risk. Other risks were less prominent in the Swedish crisis but, in my opinion, will be of increasing importance to banks all over the world. Among those are operational risks. Several recent financial debacles, such as the Baring crisis, were due to operational risk. Even though the Y2K problem was successfully managed, the huge computer systems of banks could cause large losses if technical or other failures occur. Another risk, which in my mind will become increasingly important, may be called “strategic risk”. The financial market in most countries is highly competitive. In order to survive and prosper, banks must take bold decisions on new activities, new establishments, mergers, technological investments and so on. Decisions like these have to be taken, but should they go wrong, banks may suffer large losses and may even go bankrupt. To handle these and other risks, internal controls and internal audit systems are becoming increasingly important. The huge mass of information in modern banking makes it impossible for supervisors to monitor individual transactions.
Either new capital must be put into the bank before the transfer of assets or it must be injected into the AMC when the real value of its assets becomes obvious to everyone. Putting the money straight into the bank speeds up the restructuring process. 5  BIS Review 66/2000  Consolidated supervisory authorities I mentioned that supervision should be conducted on a consolidated basis, covering activities in different financial and non-financial sectors. Should also the organisation of the supervisory authority be “consolidated”? Several countries, including the UK, Korea, Australia and others have recently moved in the direction of creating an “FSA” which is responsible for the supervision of banks, securities markets and insurance. In Sweden, we have had an FSA since 1990. Is such a consolidation necessary and useful in all countries? In my view, the optimal structure of the supervisory authority depends on the structure of the individual country. In many countries, banks conduct the most important financial activities while securities markets are less important. Here at least bank supervision must be independent, have adequate resources and skilled staff. This is crucial. In many countries, bank supervision is a part of the central bank. This has benefited bank supervision because the central bank usually has legal independence, adequate resources and can attract qualified staff. Combining bank supervision with securities and insurance supervision will probably imply that supervision will move outside the central bank, since securities and insurance supervision is not normally a task of central banks. In this sense, bank supervision may become weaker.