Pigovian taxes are common within the area of environmental regulation, where they can, for example, take the form of fuel taxes in order to put a price on the negative environmental effects of traffic. In the same manner as these taxes attempt to put a price on the environment, it is possible to imagine using a Pigovian tax, based, for example, on the banks’ lending, to price – or internalise – negative external effects associated with banking. As the banks would pass at least a portion of such a tax on to their customers, the effect of this tax on the borrowing rate would be equivalent to an increase of the interest rate margin. Sweden recently introduced a stability charge to be paid by the banks. This charge is intended to finance a stability fund to act as a central government financial buffer for the costs that may arise in a financial crisis. At present, the stability charge is not riskdifferentiated. A charge that is risk-differentiated in an appropriate manner to provide the banks with the incentive to redistribute their activities depending on risk could be seen as a type of Pigovian tax. It could also be imagined that Pigovian taxes could be used to attempt to correct the crossborder external effects that may arise in an increasingly integrated European banking market. One example is the Swedish banks’ lending activities in the Baltic which have probably entailed a liquidity risk in foreign currency in Sweden.
However, with a rule of action, the application of regulations itself becomes a function of a number of variables that vary over time:  itlending  it   t ( z ( z , lt , yt ,...)) . Various institutional arrangements can be imagined, based on the distribution of responsibility for assessing the variables in the function, determining rules of action or functional form and, finally, for translating the function into actual regulations. The latter would probably require an element of discretionary decision-making. One possibility would be for the central bank to determine the policy rate ( it ) and for the supervisory authority to determine regulations, that is to say both z and z (...) , as is the case in Sweden. Another possibility would be for the central bank not only to determine the policy rate, but also to determine the time-varying regulations through taking responsibility for the application of the rule of action ( z (...) ), while the actual implementation of the non-time variable regulations ( z ) would be the responsibility of the supervisory authority. A variation of this would be for the central bank to be completely responsible for the implementation of the time-varying regulations. Finally, there is the possibility of the central bank taking responsibility for all regulation and supervision. At present, it is still too early to say whether the international debate will conclude that one form of organisation is better than any other.