The Riksbank supports the EU commission's motto of “better regulation” and that all regulation changes must be preceded by objective and extensive impact assessments and cost-benefit analyses. Concluding remarks Let me now summarise. The financial turmoil that began in the United States over one year ago has now spread around the world with full force. Strong distrust currently prevails in the markets, which in one way or another essentially afflicts all financial institutions. For Swedish banks this trend is mainly expressed by the fact that they are forced to borrow on much shorter terms than usual and at higher rates. In brief, although we are not responsible for the current situation we are certainly feeling its repercussions. Both the Riksbank and Finansinspektionen still hold the opinion that the major Swedish banks have strong capital buffers, robust earnings and low loan losses. Consequently, conditions are good for handling the current uncertainties as well as for dealing with unexpected future losses in the economic downturn we see ahead of us. Thank you! BIS Review 125/2008  7
In many of the Central and Eastern European (CEE) countries of the EU, vulnerabilities have been reduced since May, but the economic and financial situation remains fragile. In particular, further economic contraction is forecast for a number of these countries next year. In this environment, a combination of rising unemployment and falling household incomes could be expected to raise the credit risks on consumer loans and residential mortgages. Corporate default rates are likely to be high in such a context as well. Given these fragilities, the possibility of a resurfacing of risk aversion towards the region can not be excluded. In several CEE economies, vulnerabilities stem from the fact that a sizeable proportion of outstanding bank loans are denominated in currencies other than the currency in which the borrower’s income is denominated. Such mismatched foreign exchange currency positions mostly affect households. In countries with flexible exchange rates, currency depreciations earlier this year have meant that households would have to repay larger amounts than they expected. Recent developments serve to underline the risks that exist when large stocks of foreign currency credit are outstanding. The share of foreign currency lending in many of these countries has been rising, owing to wide interest rate differentials. This has left them increasingly vulnerable to a renewed weakening of their currencies, which could trigger a significant further deterioration in banks’ asset quality. 2  BIS Review 168/2009  The general recovery of risk appetite has benefited the hedge fund sector.