Of course, this is because the financial system is constantly changing – new instruments and markets arise and technology develops. And, as the financial system changes, the risk outlook changes too. What at first seems to be uncomplicated and “risk-free” need not be so in reality. This suggests that a broad set of macroprudential supervision instruments is needed to tackle systemic risks. … suggest a broad toolkit for macroprudential supervision So what should we bear in mind when selecting and designing tools for macroprudential supervision? Firstly, we need to be able to counteract different types of systemic risk and, for this, we clearly need different types of tool. The principle used in dealing with problems involving a tendency towards exaggerated cyclical behaviour is to variously make it more expensive and less attractive to allow risks to build up when times are good, at the same time as buffers are created that can be used when times are bad. Problems caused by the financial system’s structure should instead be approached by managing individual institutions’ contributions to total systemic risk, for example by way of specific requirements for capital buffers, strengthened requirements for transparency, or limitations on certain types of activity. Secondly, there is probably a need both for tools with a wide area of effect and for those aimed at a particular sub-market or activity. Countercyclical capital buffers are an example of a tool with a relatively wide area of effect. These are based on the total expansion in credit and cover all banks.
It is well-known that I have advocated a lower repo rate to push down unemployment faster and to push up an inflation rate that is currently below our target of two per cent. As there is a broad opinion that low interest rates form a risk to financial stability, it may seem as though I am taking the risk of a financial crisis breaking out in Sweden too lightly. But I am not. I share the opinion that economic policy needs to focus on counteracting financial crises. But I do not think that this is primarily a task for monetary policy. On the contrary, it is a task for macroprudential policy, and it is this topical policy area that I will be talking about today. I have previously spoken on how macroprudential supervision could be organised in Sweden, and on how responsibility for the tools in question could be allocated. 1 The question of the allocation of responsibility and mandates is also being investigated just now by the Financial Crisis Commission. In my opinion, it is important that there are clear targets and mandates for macroprudential policy in the same way as there are for monetary policy. If this is the case, each policy area can take the other for granted. Macroprudential policy is aimed at counteracting risks in the financial system as a whole, and is a policy area for which many countries are now trying to set the framework.