1 But what are we to expect from the Riksbank’s balance sheet in the future? This is the question I would like to discuss today. My discussion will be based on a monetary policy perspective, which means that the focus is on the holdings of Swedish government bonds built up by the Riksbank in recent years and on the monetary base and the liquidity surplus that is now on the liability side of the balance sheet. There are other components that also have a major impact on the Riksbank’s balance sheet but I will not discuss these in any particular detail. Here, I am thinking mainly about the foreign exchange reserve. I will also refer to the international discussion, in which arguments have been put forward both for and against “large” central bank balance sheets. The arguments  I thank Henrik Erikson, Jesper Hansson, Björn Lagerwall, Marianne Sterner, and Anders Vredin for discussions and comments on previous versions of the text. *  1 [16]  concern two related questions: Should the purchase and sale of bonds be an active monetary policy tool even in the future? Do large bond holdings strengthen the transmission of central bank policy rates to market rates? Before I analyse these questions in more detail, I would like provide some background by describing both what central bank balance sheets looked like before the crisis and how they have developed since, and how the design of monetary policy interacts with the balance sheet.
On the other hand, it is hard to imagine that this scenario could have played out as it did without the worldwide glut of cheap credit in the years before the global financial crisis and Iceland’s position as a party to the EEA Agreement, which provides for a legal and regulatory framework based on European Union Directives, including free movement of capital and provision of financial services. The underlying principles are those of home licensing for operation throughout the EEA and a level playing field for competition, where size and location are not supposed to matter. This European “Passport” enabled the Icelandic banks to operate throughout the EEA, including through branches in other EEA countries. We know now that there were and are deep flaws in this framework: flaws that are important elements in the current eurozone crisis. A key issue here is the dichotomy between  BIS central bankers’ speeches  1  European passport rights, on the one hand, and national supervision, national deposit insurance, and national crisis management and resolution regimes, on the other. This is what recent proposals of a banking union are supposed to deal with. But then, for EEA countries outside the euro area, this framework entails potentially enormous foreign currency liquidity risk in the banking system that is not covered by a lender-of-last-resort (LOLR). This was a key element in the Icelandic banking crisis and must be addressed in future reforms of the system. Let me now say a few words about Iceland’s crisis and recovery.