Nevertheless, there is a significant risk that the credit supply to Swedish companies and households could worsen considerably if the problems on the credit markets take hold and persist. Not only would the effects of such a credit squeeze be unfortunate for companies and households – they would harm the entire economy. It is in part against the background of this risk that we should view the Riksbank's liquidity support measures over the past few weeks. It is also one of the reasons for The Riksbank's most recent decision to cut the repo rate by 0.5 percentage points. Role of Swedish authorities One of the main duties of the Riksbank is to promote a safe and efficient payment system. More specifically, this means that the Riksbank continually analyses risks and threats to the stability of the Swedish financial system. The purpose of the analysis is to discover any changes and vulnerabilities that could lead to a serious crisis. In the event that a crisis should occur, certain tools are at our disposal to handle the situation. Over the past few weeks you  BIS Review 125/2008  3  have seen several examples of how we can assist the banking system in various ways with liquidity-supporting measures when the situation so requires. The Riksbank is not the only authority that is responsible for ensuring financial stability. Finansinspektionen also plays an important role as a regulatory authority.
To enable the banks to restore the situation to more normal conditions, the Riksbank has offered financing at longer terms than what the markets can currently provide by lending Swedish krona with maturities of three and six months. The lending is designed so that we provide liquidity in the form of somewhat longer loans and absorb the same quantity of short term liquidity. Combined with the fact that lending takes place at market rates, this means that banks receive help with their strained financing situation at the same time that the measures do not have any direct effects on monetary policy. This is a very important point. The Riksbank is quite simply helping the banks replace their short-term financing with longer-term financing. In a broader sense, the Riksbank is assuming the role of market maker in the money market and by doing so ensuring its functioning. The other problem is that a general shortage of financing opportunities in US dollars has arisen. Since the Swedish banks are not counterparties with the US central bank, they cannot be certain that they will receive any of the injections of liquidity that the Federal Reserve makes. That is why the Riksbank have offered their counterparties large loans in US dollars.