Stefan Ingves: Can regional financial sector assessments provide additional values to the EU countries? Speech by Mr Stefan Ingves, Governor of the Sveriges Riksbank, at a seminar arranged by the National Bank of Belgium, Brussels, 13 June 2006. *  *  *  What is needed for financial stability? I am honoured that you have invited me to speak tonight, setting the scene for tomorrow’s seminar. I am in the enviable position of having inside knowledge of the strengths and weaknesses of the IMFFSAP framework and at the same time in my new position being free to think ahead without necessarily being mindful of internal IMF policies on every detail. That said, although I have moved from the IMF I feel strongly about the financial stability assessments, such as the FSAPs, and I sincerely think that they can make a difference. My message to you today could be summarised as follows: •  The main value of the FSAPs so far conducted is that they link together the various parts of national financial systems; identifying strengths, weaknesses and vulnerabilities. •  However, the national focus becomes increasingly irrelevant due to the rapid development of cross-border establishments and other financial interlinkages. Hence, we need a multilateral approach, such as a regional one. •  The EU-area is well suited to perform regional financial stability assessments since crossborder integration has come a long way in Europe. In fact, I believe that the EU countries should set up a system to conduct their own regional self-assessments.
For instance, while a fixed-exchange rate regime in certain circumstances tends to support financial stability in a country (or group of countries – to refer to the European context) there might be situations in which such a system could have the opposite effect. To underpin financial stability, economic developments should be sustainable, transparent and predictable. This also applies to political decisions, which affect the financial system directly or indirectly. Completing the circle and reverting to my first observations on the increased global linkages, most countries’ financial systems are influenced by developments outside the domestic economy. Linkages come through different channels: macro economic events having international repercussions, for instance through international markets, or “micro events” such as via banks’ cross-border affiliates. BIS Review 52/2006  1  The FSAP – an attempt to tie together the loose ends Given the various pieces needed to shape and maintain a stable and efficient financial system we need a bird’s-eye view to see that they are all in place and that they do not counteract one another. The approach should also identify weak spots from which the financial system potentially might be destabilised. This need for a bird’s-eye view resulted in the creation of the FSAP. The FSAP is intended to cover the pieces I just mentioned – standards, preconditions and institutional setting and the interplay of these factors in the context of the domestic economy.