Crisis prevention  Turning to my last financial stability issue, that of crisis management, in my view this is mainly a question of being prepared. Or as prepared as possible, I should say, because how can you adequately prepare for the unknown? There are basically two types of crisis: a slow crisis and a fast crisis. By a fast crisis I mean single but severe events like fraud, major loan losses or general events that quickly lead to loss of market or creditor/depositor confidence. These cases call for quick action. Normally the central bank takes the lead because of its ability to provide emergency liquidity assistance and because of its access to updated information on the liquidity situation in the market. But close cooperation is required, especially with the supervisory authority, which has information on individual banks, and with the Ministry of Finance, if there is a need for solvency support. In my experience, there are many possibilities for such a process to fail. Misunderstood information, unclear leadership or conflicts of interest may delay the process until it is too late. The chances of solving a fast crisis increase enormously if all institutions involved have prepared for it, e.g. through crisis management drills. Such drills tend to uncover the shortcomings or conflicts that may prevent smooth cooperation when really needed. A slow crisis, on the other hand, may be detected but not always prevented by financial oversight.
Even loans with a longer duration could in principle be financed by short-term borrowing on the interbank market. The lending rate in the interbank market will thus comprise the bank's financing cost for this loan and is therefore an important factor when the bank decides the lending rate it will offer the company. For loans with a longer fixed term, expectations of the development of the repo rate during the duration of the loan will affect the financing cost and thus the lending rate the bank sets for a longer term loan. A bank that has a surplus to invest can in the same way choose between investing it in the interbank market and lending money. The interbank rate will thus influence the lending rate the bank offers households and companies as it comprises an alternative yield. In addition to the interbank rate, however, the banks' lending rates are determined by many other factors. When setting interest rates, the banks must of course compensate themselves for the credit risks connected with the loan and at the same time reserve funds in their own capital to meet any future losses. The fact that banks from time to time make differing assessments of borrowers' credit rating should not in itself affect how much the banks' lending rate changes when the repo rate is raised. The impact from monetary policy should not, therefore, change merely as a result of the banks changing their assessments of the credit risk.