Or as Voltaire is supposed to have said "While history may never repeat itself – man always does!”  4  BIS Review 30/2008  Financial crises arise as a result of imbalances in the balance sheet So why do financial crises arise? The root of most financial crises can quite simply be found in the imbalance between assets and financing. The simplest way to illustrate this is to look at a stylised bank’s balance sheet. On the asset side there is lending to companies and households. These are assets that cannot be realised quickly without a substantial discount. In other words, they are illiquid. The bank’s financing on the other hand largely consists of deposits from the general public and short-term borrowing on the interbank and securities markets. Their financing is thus very liquid. In normal circumstances this is not a problem, as we do not expect all depositors and other lenders to withdraw their money or their financing at the same time. But at the same time this liquidity transformation makes the bank sensitive to its financiers' confidence in its ability to meet its obligations. Suspicions that the bank has financial problems could very quickly lead to a bank run. There have been many bank runs in the past. Stockholms Banco, which was founded by Johan Palmstruch in 1656, was hit by a bank run in the 1660s when the depositors lost confidence in the notes issued by the bank.
In addition to this are the owners’ interest in their legal rights and not least society’s interest in the administration of justice functioning in the field of economic crime. 8  BIS Review 30/2008  All of these interests, and probably more, are entirely legitimate and must of course be taken care of in the legislation. But they must be classified according to their relative significance to society. Otherwise it will not be possible to distribute the roles between the different authorities in the best way when managing problem institutions. There is also a risk of wasting valuable time on managing conflicts between different interested parties instead of managing the institution’s problems. In other words, it is necessary to have a bird’s eye view when drawing up regulations. The regulations must be formulated to give the state the right tools I know that the Ministry of Finance is currently working hard on a proposal for public administration of banks in distress. The design of the deposit guarantee and Finansinspektionen’s powers of authority are also being reviewed. We eagerly await these proposals. Even if the work is carried out on parallel tracks, it is important that the final result is coherent. Otherwise it could be difficult to manage a future crisis in the financial system. It is also important that the proposals are not toothless. Running a bank is not a right, rather it entails considerable responsibility towards both society as a whole and the customers who have entrusted their savings to the bank.