Villy Bergström: Should the Riksbank be concerned about asset prices? Speech by Mr Villy Bergström, Deputy Governor of the Sveriges Riksbank, at a Breakfast Meeting arranged by Round Table in Sundsvall, on 11 April 2000. *  *  *  The Swedish economy is growing more quickly than for a very long time. In 1999, GDP increased by 3.8% and during the coming three years, growth is expected to average almost 3.5%. At the same time, the prerequisites for a long-term favourable development appear better than for many decades. Almost all economic indicators are pointing in the right direction. Despite a very strong upswing, the long-term inflation expectations remain stable and close to the target for monetary policy. Central government finances are in surplus for the second year running and despite a planned tax reduction of over SEK10 billion this year, the surplus in the central government budget is expected to total at least 2% of GDP. From having had the next poorest budget balance in the entire EU in the early 1990s, the budget balance in our public finances is now among the strongest in the whole union. Since the mid-1990s, central government debt has decreased from 80 to 70% of GDP. Our country’s financial balance, ie the current account, has at the same time shown a surplus for a number of years and the foreign debt has fallen from 40 to 20% of GDP during this period.
The Consultative Paper calls on supervisors to ensure that each bank has sound internal processes in place to assess the adequacy of its capital based on a thorough evaluation of its risks and capital structure, thus moving the Accord beyond a ratio-driven minimum capital standard to a comprehensive approach for assessing capital adequacy. In general, supervisors have expected and continue to expect banks to hold more than the regulatory minimum amount of capital. In proposing this supervisory review of capital, the Basel Committee intends to foster a more active dialogue between banks and their supervisors with respect to the actual level of capital banks choose to hold. I want to stress, however, that this proposed approach to assessing capital adequacy in no way intends to replace the judgment and expertise of bank management. Nor is this approach meant to shift ultimate responsibility for the adequacy of bank capital to the supervisors. On the contrary, I believe that managers are the ones with the most complete understanding of the risks that their institutions face and it is they who must have the primary responsibility for overseeing these risks. The task for supervisors in this framework is to evaluate how well banks are assessing their own capital needs relative to their risks, including whether banks are appropriately addressing the relationship between different types of risks. To this end, the Basel Committee is currently developing guidance to help supervisors evaluate internal capital assessments conducted by banks.