Mr. McDonough gives a US perspective on Economic and Monetary Union in Europe Remarks by the President of the Federal Reserve Bank of New York, Mr. William J. McDonough, before the Association of German Mortgage Banks in Frankfurt, on 17/11/97. I am honored to be invited by the German Mortgage Banks to be the keynote speaker tonight at the Association’s annual Pfandbrief Forum. It is a great pleasure to be here in Frankfurt among so many distinguished representatives of the German banking and financial community and members of the Bundesbank Council. In my remarks to you this evening, I would like to offer a few thoughts on the implications of Economic and Monetary Union in Europe from my perspective as President of the Federal Reserve Bank of New York. Many in the United States today are following developments in Europe’s move toward monetary union with considerable interest. I am certainly among them. There can be no doubt about the magnitude and economic importance of the historic event that will take place on January 1, 1999, when the currencies of up to 15 member countries of the European Union are scheduled to be unified. It is a goal toward which Europe has been working ever since the Treaty of Rome was signed in 1957 creating the European Economic Community. While some might claim that this historic development will have little impact on the U.S. economy, nothing could be further from the truth.
Hopefully, the report can contribute to a well-informed debate on the stability of the Swedish financial system and influence those participating in the system. The Riksbank can also use the Financial Stability Report to show how we work to achieve the objectives the Riksdag has set us. The layout of the report provides a good insight into the way we work. It begins with a review of international events, describing growth and prices in the financial markets and on various assets. In this context, the analyses and assessments of developments outside the Swedish borders play an increasing role, in line with the ongoing internationalisation process. After describing the environment in which the banks and their borrowers operate, we devote a chapter to a survey of how the borrowers - households and firms - have been affected. What is the level of indebtedness and the ability to service debts? Are there any risks entailed in their actions? If things go well for the banks’ borrowers, they normally go well for the banks. Developments over the past five years, with the Swedish banks increasingly investing abroad, have meant that a substantial percentage of their borrowers are in other countries - mainly in the Baltic region. This means that our analyses cannot focus exclusively on Sweden; we must also take into account developments in, for instance, neighbouring Nordic countries. The banks own actions can also affect the stability of the payment system. What strategic choices do the banks make?