In connection with this, a number of provisions of a compulsory nature were introduced to prevent the possibility of the state being placed in a blackmail situation. For instance, an act was introduced that meant in principle that the Swedish Bank Support Authority could make decisions in the bank through a state compulsory purchase of the shares if the bank’s capital adequacy fell below two per cent. But these temporary provisions, like the general bank guarantee, ceased to apply in 1996. The Bank Support Authority was transformed into the Deposit Guarantee Board, which was given the task of managing the deposit guarantee and investor protection. Since then it is in principle only the general regulations for competition and liquidation and the system for the deposit guarantee that are available for managing institutions with problems. Unfortunately it is not particularly appropriate – if even possible – to apply the general competition regulations to banks. The regulations on competition and liquidity are primarily to protect the interests of the creditors. They are not particularly well-adapted to take into account society’s interest in maintaining the stability of the financial system. The primary task of a receiver in a bankruptcy is to safeguard the interests of the creditors. He or she has neither the authority nor can be expected to have the skills required to take the measures needed to safeguard the stability of the financial system. Problems which threaten stability require immediate action. Bankruptcies usually take years to resolve.
And it must be possible to distribute the socioeconomic burdens in the wake of a cross-border crisis in a reasonable and preferably fairly predictable manner. Otherwise there is a risk that conflicts between national interests will make the management of a crisis more difficult and prolonged. Another aspect which has come to the fore in the recent financial turmoil is the banks’ increased dependence on liquidity in the securities markets for their risk management and financing. Central banks around the world need to examine whether they have the necessary tools to manage coming liquidity crises. The question of when and how liquidity support can be given and how such a decision should be communicated without having a stigmatising effect that counteracts its purpose may require new ways of thinking. 10  BIS Review 30/2008  Better regulations and increased cross-border cooperation are necessary Let me in conclusion observe that the financial turmoil currently prevailing bears a number of clear parallels to many other financial crises – not least the Swedish bank crisis of the 1990s. The bank crisis was in many ways the wake-up call that made the Riksbank and other authorities realise the serious consequences that a lack of stability in the financial system can have. It led to the Riksbank developing an analysis capacity in the field of financial stability. Ten years ago the Riksbank published the first of its now regular Financial Stability Reports. I can warmly recommend that you read them.