Stefan Ingves: The crisis in the Baltic – the Riksbank’s measures, assessments and lessons learned Speech by Mr Stefan Ingves, Governor of the Sveriges Riskbank, to the Riksdag Committee on Finance, Stockholm, 2 February 2010. *  *  *  The crisis in the Baltic – the Riksbank’s measures, assessments and lessons learned It is not possible to provide a comprehensive reply to all of the questions discussed in connection with the crisis in the Baltic in the space of 15 minutes. I shall therefore give a brief summary of the assessments made by the Riksbank during the course of the crisis and something about the measures we have taken. In conclusion, I shall say a few words about the lessons that can be learned. Before I discuss the role of the Riksbank, I would like to point out that the responsibility for developments in the Baltic countries primarily lies with their own governments with regard to economic policy, and with the banks, which have a responsibility for understanding developments in the economy and taking sustainable, long-term action. People often seem to forget in the general debate that we are talking about three different countries here. Financial market participants also tend to see the Baltic countries as a unit, which makes it difficult to manage the crises in these countries. Of course there are many similarities between the countries, for instance, their economic expansion and decline. However, there are also important differences.
To build a fuller picture of how credit is affecting the level of risk in the financial system, it is necessary to drill down into the sectoral components of credit and their counterparts in the economy. Household credit The largest component of bank credit in the UK economy is of course lending to households and within that the great bulk, around 90%, is secured on dwellings. Mortgage lending is the single largest asset class on lenders’ balance sheets and stock of lending secured on dwellings is around 70% of GDP. Net secured lending to households is rising at nearly 3% – the highest rate since the end of 2009. Mortgage rates in the UK are now at very low levels – average quoted rates on two-year (75% LTV) fixed-rate mortgages are below 2%. Some of this of course is because the Bank of England’s official Bank Rate has been close to zero since 2009. But over the past three years, as banks’ funding costs have reduced and as competition in the mortgage market has intensified, on average mortgage interest rates have fallen by 2 percentage points. Unsecured lending to households is a much smaller proportion of credit; it accounts for only 12% of lending to households and around 10% of GDP. And the stock of consumer credit remains £ billion below its peak in 2008. But it is growing at around 8% a year, much faster than secured lending.