The US central bank, the Federal Reserve, has taken measures to safeguard financial stability. The unease we see in the markets is on a global level and affects us all, but the financial crisis is mainly centred on the United States. We are not isolated The Swedish financial system has functioned well and the banks have been able to finance themselves both in Sweden and in the international capital markets. The overnight rate, the shortest interest rate in the economy, has remained stable around the repo rate. In this way the Riksbank’s system for steering the interest rate works well. But as I said, up here in Scandinavia we are not isolated from what is happening in the world around us. Swedish  BIS Review 115/2008  1  banks are now affected more tangibly than before by the global financial turbulence even though they only have small exposures to the US mortgage market, which is the centre of the crisis. Interest rates have now risen substantially here, too, for instance on the interbank market. This is the market where the banks borrow money from one another to cover their short-term liquidity needs. Let me stress, however, that higher interest rates are not the same thing as the Swedish banks experiencing problems, although it is becoming more expensive for them to borrow money. The Swedish banks have had a good development in profits in recent years and they are financially strong. They have a good starting position to meet higher costs.
Measures to ensure the markets function efficiently But the markets have not functioned as efficiently as usual. For instance, interest rates in the interbank market have risen as a result of the increased uncertainty. There has also been a surge in the demand for treasury bills. The Swedish National Debt Office and the Riksbank have maintained a regular dialogue regarding the money and bond markets and the need to counteract the effects of the US financial crisis. Last week the Debt Office decided in consultation with the Riksbank to issue treasury bills at a number of additional auctions to meet the large increase in demand. The funds from the auctions will be invested in what is known as covered mortgage bonds. This improves the way the market functions right now. To ensure that the financial system functions as well as possible, the Riksbank has also implemented some other measures for preventive purposes. On Monday we decided, to put it simply, to increase the access to credit for participants in the RIX payment system. One can say that we are oiling the wheels of the system by making it easier for participants to make their payments to one another during the course of the day. They can now to a greater extent use their own covered bonds, or those issued by an institution with close links, as collateral in the system. A covered bond has collateral in the form of, for instance, a mortgage, which is provided by the credit institution that has issued the bond.