Figure 16 shows the development of unemployment in a number of countries that have been hit by major adjustments on the housing market. Many factors have contributed to these adjustments, but access to cheap loans during the upturn is one of  6  According to the Swedish Public Employment Service, there are four groups who have a relatively vulnerable position on the labour market and who find it difficult to get a new job if they become unemployed: those born outside Europe, people with less than upper-secondary school education, people in the age group 55–64 and people with a physical disability which reduces their capacity to work. BIS central bankers’ speeches  5  them. There are thus risks associated with setting the repo rate too low and this applies not least to unemployment, although perhaps beyond the rather short economic horizon that normally attracts almost all the attention. An appropriate balance I have now provided some background to some aspects of the difficult balancing act that we must perform when determining monetary policy. Let me conclude by illustrating this with reference to our latest monetary policy decision and our latest forecast for the repo rate. Here we have achieved what I believe is an appropriate balance. The weaker economic prospects and the low inflationary pressures justify keeping the repo rate low. This will help inflation to rise towards the target of 2 per cent and to strengthen economic activity (see Figure 17).
In the last rate tightening cycle, we observed that banks with larger concentrations of long-term earning assets experienced lower margins. It will be important for community banks that are very sensitive to interest rate risk to evaluate the risk management of their loan portfolios. Finally, when I meet with community bankers, I am often asked the following question: “When will we see regulatory relief?” My simple answer is soon, I hope. There is wide ranging consensus—across party lines and among regulators, the Federal 1/2  BIS central bankers' speeches  Reserve included—that we need to reform the regulatory requirements for small banks. As I have said, I favor regulatory relief for smaller banking organizations.2 Their size and complexity do not pose a significant risk to the system, and they lack the scale to absorb large compliance and other regulatory costs. Given broad agreement on this issue, I am hopeful that relief will be forthcoming. Let me conclude by saying that we continue to recognize the important role community banks play in our economy. According to a study by our colleagues at the Kansas City Fed, the U.S. banking system is unique because of its balance between a small number of large banks and thousands of community banks.3 That balance helps serve the needs of a large and diverse U.S. economy that includes businesses of all sizes and consumers with different needs and preferences.