This applies for amounts of up to SEK 250,000 per customer and institution. It is only if the deposit has been made by another financial institution or in some cases if the amount is frozen that the deposit guarantee does not apply. This reasoning concerned what we could do in a situation where financial stability is threatened. Some central banks have recently been forced to take this type of measure. But none of the Swedish banks has had problems with its liquidity in the way I described in my example. So how do we view the current situation? Recent developments As I mentioned earlier, the financial turbulence has been included in our analyses for some time now, both with regard to monetary policy and financial stability. The Riksbank has regularly emphasised many of the risks in the financial system and what could happen if the financial turbulence should grow worse. The Riksbank bases its assessment on an analysis that focuses on the four major Swedish banks, as they account for around 80 per cent of the market. The Swedish banks have considerable equity, good profitability and limited loan losses. Our assessment is that there is a high degree of resilience to the international turmoil  BIS Review 119/2008  3  that has prevailed for some time now. But this is not the same as saying that the Swedish financial markets and banks are not affected by the situation. Of course they are.
However, I considered that this risk is slight at present, now that economic activity is slowing down. The labour market usually lags behind production in the economic cycle. Employment has risen rapidly in recent years and when demand and production slow down as quickly as they are now, my assessment was that companies are more likely to cut their workforces rather than raise prices substantially. The redundancies announced at the beginning of the autumn may be an indication that many companies have had to reduce their labour forces. To summarise, my assessment was that inflation would slow down sooner than was assumed in the Monetary Policy Update. It was therefore my conclusion that no further interest rate increase was necessary to bring inflation back on target within a reasonable period of time. Further, my assessment was that the repo rate might need to be cut more than indicated by the proposed interest rate path and I therefore entered a reservation against the new interest rate path. Some concluding thoughts The Riksbank, like many other central banks around the world, is currently facing difficult challenges. But although they are difficult, we are well-equipped to meet them. For instance, we have an entirely different starting point from that during the finance crisis of 1992, which largely concerned problems that had originated here at home. Today we are suffering contagion effects from problems in the US mortgage market, a market to which the Swedish banks have only small direct exposures.