Similarly, crises that are preceded by a credit and housing boom tend to be longer and more severe than other economic crises.1 A fall in housing prices may lead households to save rather than consume in order to compensate for the fact that the value of their homes has fallen. If many households behave in this way, this may weaken economic activity, increase unemployment and create loan losses in the banks' lending to companies. This, for example, is what has happened in our neighbouring country Denmark in recent years. What we can note is that the credit conditions for mortgages changed in the early 2000s. Interest-only mortgages became increasingly common at the same time as the loan-to-value ratios increased. The banks also began to fund mortgages by issuing so-called covered  1  See Claessens, S., A, Kose, and M, Terrones (2011), “Financial Cycles: What? How? When?”, IMF Working Paper. CEPR Discussion Paper, NO.8379. BIS central bankers’ speeches  3  bonds on the financial markets to an increasing extent. Easy access to inexpensive funding in combination with a high demand for mortgages led to rapid credit growth. Now, the debts of the Swedish households are high in both historical and international terms. Although the rate of credit growth has slowed down and loan-to-value ratios have fallen – the mortgage cap introduced in 2010 has probably contributed to this – there are still structural weaknesses on the Swedish mortgage market.
A guiding principle for us is that the body that is given responsibility for macroprudential policy needs a clear mandate with both the right and obligation to take action against risks that arise and appropriate tools that can be used to limit the risks. The discussion of macroprudential policy also comprises the issue of the Riksbank’s balance sheet, and particularly the foreign-exchange reserve. As you know, the inquiry conducted by Harry Flam recently presented its proposals. Here too, the Riksbank is in the process of formulating its stance. The public are entitled to expect that the authorities act to prevent and manage financial crises in the best possible way All of the things I have talked about here are measures that aim to reduce the risk of a financial crisis recurring, or to limit the damage if a financial crisis nevertheless breaks out. The international process that has come to expression in the Basel III Accord is creating better regulations for the banks in all countries. This also benefits us here in Sweden. Over and above this, however, we have to manage the Swedish banking system and its special characteristics. Sweden is a small open economy with its own currency and large banks. We need special regulations. This means that we, like a number of other countries, want to proceed more quickly and impose stricter requirements than those in the Basel III  10  BIS central bankers’ speeches  Accord. However, the measures we have taken so far have already clearly strengthened the Swedish banks.