In the Swedish banking crisis, the public interest was secured by special crisis legislation So, how do we fare in this respect? Well, let us take a look at some real crises. I will start with the case with which I am most familiar, the Swedish financial crisis in the early 1990s. I got involved in the management of the crisis in my capacity as an official at the Ministry of Finance. At the time, the country had severe macroeconomic and financial problems, with a number of banks reporting losses. Moreover, the banks were finding it increasingly difficult to obtain financing in the international capital markets, a source of funding they were heavily dependent on. The international counterparties reduced their exposures not only to those banks that were having fundamental problems, but to Swedish banks in general. In order to avoid a collapse of the banking system, it was necessary to take action. We tried several measures to contain the “silent run” on the banks. What proved effective was the declaration by the government that the banks would meet their debt obligations as they fell due. This general guarantee, as it has been called, did not take the form of a legally binding guarantee, but was merely a political commitment that the creditors would not suffer losses. At the same time it was necessary to deal with the banks in distress. And it was quite obvious that we could not do this within the normal court-based insolvency procedure.
But I think that we could go further in the direction of setting up minimum requirements for a crisis resolution framework for banks and other institutions covered by the financial safety net. Here one can draw some parallels to the work on fiscal policy frameworks, where the EU has come a long way in terms of coordination and codes of conduct in the event of macroeconomic crises. Where do we go from here? It is time to sum up. My message is that it is important for us to get in place an efficient regulatory framework for weak banks. A framework which combines the need to maintain stability and minimise costs to the public sector in the short term with the requirement for long-term market discipline. Returning to the health-care metaphor I started out with, we need to be able first of all to deal with the ordinary flus and broken bones of the financial system. But we also need to be prepared to deal with a more serious event. A possible outbreak of avian flu in the financial system. I have tried to outline the broad lines of such a framework.