In addition, this expansion has also fostered the development of complex banking structures and, in some cases, unsustainable business models. The Icelandic banks are illustrative examples in this respect, attracting depositors’ money from the UK and the  2  BIS Review 50/2010  Netherlands and investing these funds in high yield structured products overseas. When their balance sheets had grown to around ten times the size of the Icelandic economy, it was quite clear for anyone to see that, if turmoil broke out, managing the situation was not going to be easy. But to be fair, it was difficult to anticipate the perfect storm in advance. Another lesson from this – and the strenuous and protracted negotiations between Icelandic and, primarily, British politicians that followed – is the need for establishing deposit guarantee schemes that are built up before a crisis occurs. The international expansion of banks and the home country principle have also had other effects on crisis management. Authorities have simply not kept up with developments in the banking system. Contingency arrangements between home and host countries are not highly developed and neither are there any concrete suggestions for how to share the costs of a crisis. While we have achieved economic integration and maintained national sovereignty, we have renounced effective supervision and crisis management. But national sovereignty does not mean that our hands are tied. The remedy is quite simple, at least on paper: we need better and more extensive cooperation between supervisory authorities, central banks and finance ministries in Europe.
Stefan Ingves: The importance of being savvy – lessons on European crisis management Speech by Mr Stefan Ingves, Governor of the Sveriges Riksbank, at the Fundación Rafael del Pino, Madrid, 15 April 2010. *  *  *  Crisis management is messy, time-consuming and costly. Thank you for inviting me to this renowned institute. My talk today will focus on crisis management. I have seen enough crises to be able to draw a conclusion or two from them. I learned my first lessons from the Swedish banking crisis of the early 1990s. After this I worked at the IMF, assisting in crisis resolutions in many parts of the world. During my time at the IMF, I also benefitted from discussions with a Spanish colleague of mine – Aristóbulo de Juan. His experiences from dealing with the Spanish banking crisis of the 1980s, working at the resolution authority – Fondo de Garantía de Depósitos – proved a valuable source of knowledge and inspiration. As you all know, the IMF is located in Washington. And working there, you not only learn about crisis management, but you also pick up a few local habits. For instance, Washingtonians like to use the word “savvy” – it sort of means being a bit cunning and perceptive. On reflection, being savvy pretty much sums up how you should behave when handling a crisis. Lately, a lot of attention has been given to preventing the crisis we have just experienced from repeating itself.