Lars E O Svensson: Monetary policy after the crisis Speech by Mr Lars E O Svensson, Deputy Governor of the Sveriges Riksbank, at the conference “Asia’s role in the post-crisis global economy”, held at Federal Reserve Bank of San Francisco, 29 November 2011. *  *  *  I thank Claes Berg, Hans Dellmo, Hans Dillén, Anil Kashyap, and Bengt Pettersson for helpful discussions and comments. Carl Andreas Claussen of the Riksbank staff contributed to the paper. The views expressed here are my own and are not necessarily shared by the other members of the Riksbank’s Executive Board or the Riksbank’s staff. In the aftermath of the financial crisis of 2008 and 2009 there has been a lively debate about what caused the crisis and how the risks of future crises can be reduced. Some blame loose monetary policy for laying the foundations for the crisis. There is also a lively debate about the future of monetary policy, whether it needs to be modified in the light of the crisis, and what its relation to financial stability should be. Here I will discuss the lessons for monetary policy from the financial crisis, the relation between monetary policy and financial stability, the role of monetary-policy instruments other than the policy rate, and some issues for emerging-markets arising from capital flows and exchange-rate movements.
This serves the interests of governments and taxpayers; but it is also in the fundamental interests of the financial system itself, since it is not impossible that a future crisis could outstrip the resources of monetary and fiscal policy, thus rendering it impossible to rescue systemically important banks. 2.  International approach  Consequently, there is broad international consensus between the relevant authorities on what the objectives of future regulatory measures should be. The Financial Stability Board (FSB), in which Switzerland is an active participant, has clearly formulated these objectives. The financial system must be brought to the point where it contributes to sustained economic growth. Never again must it be allowed to combine such high risks with such minimal safety buffers. Moreover, steps must be taken to avoid profits being privatised while losses are borne by the public at large. In essence, there are two ways of achieving this goal. The first approach is to adopt preventative measures aimed at reducing the probability of a bank collapse or a systemic crisis. This can be done by increasing safety buffers – for example, by imposing higher capital and liquidity requirements. The second approach is to take steps designed to reduce the costs of a crisis once it has already occurred.