The changes in the Swedish credit markets at the end of the 1980s and EU membership in 1995 made it easier for Swedish banks to expand onto an international market than it had been before. With hindsight, we can observe that  2 [12]  this took place at the same time as the existing bank regulation was not always able to adapt to new situations sufficiently fast. Financial crises are costly and affect us all Reducing the risk of financial crises is something the Basel Committee has worked on from the start. This work is important to all of us, as financial crises lead to substantial costs for society and often to permanent falls in GDP and employment. All too often it takes a very long time to recover from such crises. Even today, almost 10 years after the most recent financial crisis broke out, many countries are struggling with low growth, high unemployment and excessively low inflation. Looking at the historical development of GDP in Sweden, we see two clear falls: during the financial crisis in the early 1990s and during the most recent global financial crisis. The size of the fall after the most recent financial crisis corresponds to the total expenditure of all of Sweden’s county councils during one year. 1 Having said this, the conclusion is of course that the work on avoiding financial crises in the future is very important, not least to safeguard essential functions in society such as care and welfare, which we often take for granted.
2  BIS central bankers’ speeches  And they are long lived – probably on average around 15 years from one peak to the next.4 In contrast, business cycles are typically relatively short-lived affairs: for instance, the average duration of business cycles in the UK and US economy in the post-war period has been estimated at 5 ½ years.5 However, though financial cycles build up much more slowly than business cycles, the amplitude – the swings between the peaks and troughs – is greater. In the UK the peak-totrough variation in credit has been around 40 percentage points on average for financial cycles, whereas the average peak to trough change in GDP in the business cycle has been around 10 percentage points. Financial cycles do not always mirror or drive business cycles. To a headline writer, the fact that credit grew twice as fast as GDP for 10 years before 2007 and that household debt rose from levels of around 100% of household income in 1997 to 155% shouts “unsustainable, debt financed growth”. But over those 10 years, the economy was not obviously growing at abovenormal rates and inflation remained subdued, albeit aided perhaps by the favourable terms of trade shock that followed China’s admission to the World Trade Organisation in 2001.6 While the increase in debt may have had some impact on growth, the UK certainly did not appear to enjoy a credit financed boom.