This is because the Riksbank only lent money to the banks and did not, like the Fed, the ECB and the Bank of England, purchase bonds and other assets during the crisis.13 If the Riksbank had done so, this could have led to more serious problems when the time came to phase out the support measures. It is of course difficult to estimate the effects of the measures taken by the Riksbank in connection with the crisis as so many other things also had an impact on the course of events, not least fiscal policy and the measures taken by other authorities to preserve  12  The Riksbank also extended the types of collateral that could be approved for loans and provided liquidity assistance to two small banks, Kaupthing and Carnegie. 13  By only lending money, the Riksbank also avoided exposure to a substantial interest rate risk. 6  BIS central bankers’ speeches  financial stability. Nevertheless, it can be noted that the Swedish banks came through the crisis well. Total lending to households and non-financial companies continued to increase throughout the crisis. It can also be noted that the fall in production and employment was less than feared. Domestic demand has been kept up by the expansionary fiscal and monetary policies. Conclusions With hindsight, I think that we can draw two conclusions about the actions taken by the Riksbank in connection with the financial crisis. First, we did not see the crisis coming.
As trading position can be transformed swiftly through the use of derivatives and hence may not be reliable, regulatory focus has shifted to assess internal risk models, rather than the instruments held at a point in time. In addition to external regulation, the Group of Thirty in its 1993 study of derivatives made recommendations at strengthening risk-management techniques and procedures. Another industry initiative was JP Morgan’s decision to release its own proprietary risk-management model for general use. In addition, changing consumer behaviour resulting from aging population, for example, calls for new and sophisticated products like pension funds and long-term debt instruments. Also, consumers’ expectations are likely to be higher as they now have access to more choices from more diversified markets. Finally, de-regulation has occurred because old regulations have not prevented the massive losses incurred by worldwide bank failures. In many countries, the losses caused by bank failures have been as high as 15% of GDP, with bank losses in Japan and France at an estimated 8% of GDP. In the light of these heavy costs, governments around the world have begun to look seriously at the cost of regulation. The latest initiative include the Japanese Big Bang, which would be complete by 2000. Should the Central Bank also act as the Supervisor? There are several arguments in support of the assumption of the supervisory role by the central bank. The first is efficiency consideration.