Swedish bank managers sometimes claim that the competition in the Swedish banking market is fierce and that it is easier to generate earnings abroad. Foreign bank analysts prefer to emphasise the relative smallness and maturity of the Swedish and Nordic banking market – the major structural deals have already been done and all households already have a home loan. However, bank managers and analysts seem to agree that the potential for improving return on equity is limited. To sum up, we can conclude that Swedish banks are neither more nor less profitable than their European competitors. While Swedish banks are cost-efficient, unfortunately they are less successful when it comes to generating earnings on services other than lending. It reminds me in some ways of the Swedish football team before Zlatan Ibrahimovic and Henrik Larsson blossomed into the stars they are today – disciplined and effective in defence, but fairly lacking in goals and imagination in attack. The structure of the Swedish banking sector So, is Swedish banks’ average profitability and smaller valuation discount a result of their inability, despite their efficiency, to benefit from higher margins due to tough competition, or is it because the banks operate in an oligopoly and are incapable of developing new, profitable products. In the former case the relatively low profitability is a symptom of an efficient and competitive banking sector. But in the latter situation the authorities should be concerned, while investors possibly can see interesting but risky development potential.
This is a world in which it is harder for policy to boost productivity and growth. the second half of the 20th century, the median level of GDP per capita was 15% below the level predicted from the trend of the ten years prior to the crisis, which is roughly where the UK is currently. See Reinhart, C. M., and V. R. Reinhart (2015) “Financial crises, development, and growth: a long-term perspective”, The World Bank Economic Review. 3  2  Refers to forecasts made for the first year after the April IMF WEO in question; for example the April 2010 WEO forecast for 2011 relative to the final outturn data. BIS central bankers’ speeches  In these secular stagnation views of the world, the water around us was getting colder before the crisis and has become colder since. But we have not noticed it. And it is this, rather than the slowness of the healing process and the aftershocks of the crisis, that explains the serial disappointments in economic growth. I have set this out as two very different stories about what is happening – “slow healing” and “secular stagnation”. Of course, given enough unfortunate events and enough repeated disappointment on the pace of recovery, they could look and feel the same for a long time. There is much that is common to them. In both stories for a period of time, productivity is lower, interest rates stay low for long and pay and income growth is weak.