2  BIS Review 111/2006  First, the earlier strict regulations on lending meant that banks did not really acquire the skills to evaluate the creditworthiness of customers and loan projects – only those with very high creditworthiness had had access to the limited amounts available for bank lending to non-prioritised purposes. The restrictions on lending to other purposes led to a large unsatisfied demand from potential borrowers. After deregulation, bank lending increased extremely rapidly without banks’ credit managers really having much experience on how to evaluate borrowers’ creditworthiness. A similar weakness applied to the supervisory authority – they had supervisors with good skills to check the banks’ formal compliance with laws and regulations but not to evaluate credit decisions. At the outset, the central bank took the erroneous view that the loan expansion in the banks could to a large degree be explained by old loans moving out of the former “grey sector” and into the banks. Since this had different implications than an extension of new loans, the central bank found that there was no need for the authorities to worry. Second, a large share of bank lending went into the real estate and commercial property business. There was a building boom in Sweden during the 1980s and prices rose rapidly – paving the way for additional lending. When real estate prices collapsed in the early 1990s the value of the collateral for many bank loans fell sharply and banks suffered huge credit losses from non-payments.
It may be true that HIBOR will last for some more time. But the transition to SOFR in the USD space could gradually lead to changes in market practices and conventions that may eventually shift market preference for interest rate benchmarks. Therefore, if more HONIA-based products can be introduced in the market going forward, it would help reduce any market impact in 3/4  BIS central bankers' speeches  case HIBOR has to discontinue one day owing to changes in market circumstances. Closing 21. Ladies and gentlemen, as we have learned from speakers earlier this morning, interest rate benchmark reform is complex, but it is something too important for any market participant to ignore. When LIBOR ceases to exist, there will certainly be an impact on global financial markets. Some people may say end-2021 seems a long way off. But it’s not, given the tremendous amount of preparatory work required to ensure a smooth transition. No one in the market can afford to play a waiting game. Let’s all devote resources now, and work closely together on this important task. 22. Thank you. 4/4  BIS central bankers' speeches