On the other hand, a central bank like the Riksbank has considerable responsibility with regard to managing the consequences of a financial crisis and can therefore also be assumed to have a strong interest in preventing such crises from arising. At the same time, a central bank does not have so many instruments to try to influence developments such as credit growth and asset prices. The policy rate is a fairly blunt instrument in this context. This does not mean that financial indicators are not taken into account in interest rate decisions, which has been the case in Sweden on a number of occasions. But there is also reason to consider the possibility of using other tools than the policy rate. In this speech I shall begin by describing the causes behind the crisis. In this context I will explicitly discuss the question of to what extent monetary policy in the early 2000s might have contributed to developments. I shall argue against the opinion that monetary policy was a crucial factor behind the financial crisis. This does not mean, however, that I do not consider there are arguments in favour of central banks being more active when there is a risk of bubbles building up. I shall attempt to develop these arguments here today. A financial crisis with substantial consequences for the real economy The financial crisis that escalated in autumn 2008 in connection with the Lehman Brothers bankruptcy is the largest since the Great Depression at the end of the 1920s and early 1930s.
Turning to today’s conference theme of “On the Horizon for Community Banking,” I have a few observations that I’d like to share. These observations, in part, preview the day’s agenda and I look forward to the continued conversation on these important issues. First, our country and the banking industry have benefitted from steady economic growth, modest inflation, and low unemployment in recent years. These are all positive and welcome outcome, but not all regions have benefitted equally here in the Second District. Some portions of upstate New York have benefitted from an influx of technology companies and other industries, while other regions remain challenged due to a lack of population growth. Later today we will hear from two of our economists who will share national and regional economic trends. Also in the spirit of looking forward, I can share some views on what community bankers can expect from the supervisory process. Examiners are keenly focused on emerging trends around funding costs and liquidity risks. Bankers consistently share with us the challenge of raising core deposits to fund loan growth. Community banks compete not only with other community banks for deposits, but also with credit unions and larger institutions. And, these larger counterparts are actively courting customers through direct mailers and offering competitive rates. Data in the Second District show cost across most deposit categories have increased with a slight uptick in the higher cost funding sources such as borrowings. Data for the largest banks exhibit a comparable trend, but they control a larger market share.