For a number of decades in the middle of the 20th century there was a notable absence of serious bank crises; one explanation may be that credit markets were tightly regulated. But the regulations also created other problems, though it would take too long to go into that here. Around the 1890s, when the Swedish economy took a great leap forward, new banks were established in quick succession and credit expanded rapidly. This was followed by massive price increases for shares and real estate. The bank crisis that occurred when the boom finally peaked in 1907 had far-reaching consequences: four banks closed, five were reconstructed and fifteen smaller banks were taken over by larger establishments. After world war one there was a new wave of speculation. The prospect of large profits and the inflow of capital contributed to a stock-market boom when bourses achieved a breakthrough as suppliers of venture capital. In 1918 the Stockholm Exchange reached a turnover that at constant prices was unrivalled until the late 1980s. Another factor behind the flourishing stock markets was that commercial banks lent more and more extensively with shares as collateral. The trend ultimately peaked and the mood became less optimistic, as sooner or later it always does. When the high value of the risky assets that had served as collateral fell, a crisis was precipitated in the banking system as well as in the economy as a whole.
Ladies and Gentlemen, the mere fact that a central bank has to conduct monetary policy in a transparent manner at best results in the availability of the information necessary in order to judge the bank’s performance. Discussions of this information are not only done by the government but also most importantly, the public at large. The latter’s perception of what the central bank does and how it is done may have an impact on the central bank performance. Furthermore, Mr. Chairman, our contribution therefore should set out to develop the pillars on which central bank governance must rest. These include operational independence, accountability and indeed transparency which are complementary. Yet, certain tensions between these elements of governance cannot be ignored and have to be observed when establishing a code of good governance. With respect to operational independence, there seems to be consensus among academics and central bankers that central banks must be given a charter which includes a strong commitment to price stability, and the freedom and sufficient scope to pursue it. This means that while central banks may not have goal independence, they should have operational or instrument independence to effectively pursue their primary objectives. In a democratic society, transparency and accountability are essential if central bank independence is to remain “acceptable to the public”. Providing for a sufficient degree of transparency can help not only to increase the understanding of monetary policy which ultimately enhances central bank credibility.