At the Riksbank, we communicate our view on financial stability through different publications. A Financial Stability Report is published twice a year and we also publish articles on issues of financial stability in our journal, Economic Review. A new regulatory framework governing the way in which  2  BIS Review 24/2003  banking crises are to be managed and resolved has been proposed by a government inquiry that was set up after the Swedish banking crisis. The Riksbank strongly supports the implementation of such a framework as it would increase transparency and thereby the efficiency of crisis management even further. We have also sought to have these principles applied internationally. Transparency is also important in the sense that it facilitates external evaluation of the operations of a central bank on the basis of relevant information. This type of evaluation will normally enhance efficiency, and it is especially important in cases where the central bank determines its own budget. The monetary policy of Sveriges Riksbank is reported to the Swedish parliament twice a year and the bank's overall activities are subjected to regular evaluation by the Parliamentary Auditors. They recently performed a comprehensive audit of the operations of the Riksbank in which they highlighted a number of areas where costs appear to have increased more than expected. We welcome this evaluation, which has given us fresh inspiration in our search for increased efficiency. Finally, transparency stimulates improvement of a central bank's internal analysis and decision-making processes.
Is the credit decision taken on the basis of such evaluation - how current is the financial information on the borrower with the bank? The market is a dynamic place, where change takes place all the time. It is imperative that credit officers of banks be given maximum exposure to the real sector - the numbers in financial statements must have a direct relationship to the real sector to reflect the current status of the borrower’s business? They should support the repayment programme undertaken by the borrower on which the Bank’s credit decision was predicated. You will see thus that information is critical to risk management without which you are groping in the dark and before long you will be faced with large losses. The emphasis should therefore be on the early identification of risk, which if addressed at the very initial stages, would not expose the bank to large scale losses at a later stage. Effective credit risk management is the key to the health of the banking industry today. It is not the resolution of NPA but the cause of NPA that should be addressed. Internal rating systems must be developed to afford an accurate and continuous picture of the level of risk exposure of the bank to individual credit risk so that timely action can be taken to soften the risk. Management Information Systems must be strengthened. Preventive and remedial actions should encompass additional capital, better internal controls and/or safer provisioning policies. Capital is not a substitute for sound risk management.