As a result of the turbulence on the financial markets, however, the impact of monetary policy was weaker than normal in 2009. The Riksbank responded to these problems by complementing monetary policy with extensive lending to the banks. So, what was the nature of the forecasts and assessments that formed the basis for the monetary policy decisions? The repo rate was cut to 1 percent and the repo-rate path was adjusted downwards in February In February, it appeared that the downturn in economic activity, in Sweden and abroad, would be more severe and would happen much more quickly than previously assessed by the Riksbank. At the monetary policy meeting on 10 February, the Riksbank therefore decided to cut the repo rate by a whole percentage point to one percent. The repo-rate path was adjusted downwards and a further repo-rate cut during 2009 was indicated (see Figure 1). 1  For a more detailed description of how one can assess monetary policy see Lars E.0. Svensson, “Assessing monetary policy”, speech at Uppsala University, 13 March 2009. 2  For a more detailed description of the arguments behind my reservations see Lars E. O. Svensson: “Why a lower repo-rate path?”, speech at Umeå University, 24 February 2010. BIS Review 32/2010  3  The Monetary Policy Report from February 2009 presented forecasts based on the Report’s main scenario and alternative forecasts based on the repo-rate path adopted at the meeting in December 2008.
Fourthly, is reinforcing buffers to withstand future shocks. This is a key area of the international reform package that aims to significantly raise the resilience of the international financial system and to promote sound risk-taking activities. The standards will see financial institutions holding larger amounts of capital, including buffers which can be drawn down as losses occur. At the same time, the standards will also require banking institutions to significantly strengthen their liquidity and funding positions. Collectively, these standards aim to strengthen the banking institutions’ ability to continue to support orderly credit intermediation, particularly during periods of instability. While carrying more equity entails greater costs of capital for banks especially in the short-term, this investment will support a more stable financial system and overall global economy as well as build the confidence of consumers and investors, particularly during periods of stress. In view of these imperatives, this is a timely juncture for the industry to reflect and take charge of the efforts to rebuild and strengthen the foundations for more sustainable finance. Critical to this is the realisation that the creation of long-term shareholder value is consistent with, and not at odds with prudent risk taking and responsible business practices. Indeed, financial institutions with a regional footprint in ASEAN have the potential to contribute to the development of the financial systems in countries where they operate. There will be tremendous payoffs to be reaped from pursuing such sustainable strategies.