Those who legislate, regulate and oversee the markets will not be able to prevent this. So what can we do? To begin with, of course, we need to obtain the best possible overview and knowledge of events. We at the Riksbank consider the work in the Bank of International Settlements within the G10 to be invaluable in this context. There is also other work, for instance under the auspices of the International Monetary Fund, from which we can learn. One consequence of this development is that we must take international conditions into account to a greater extent in our own work on stability analysis. We must also oversee developments in the financial markets more than we have done and not only concentrate on the major banks. We must try to be aware of when prices depart from reasonable levels and become a risk. With regard to risk management in individual institutions, it is becoming increasingly difficult to gain insight into what is happening. It is therefore necessary to spend more time on evaluating the systems and person involved. This is the view that has coloured the new oversight system for the banks, what is known as Basel II, which is about to be implemented. It is also our task to equip the systems and infrastructure so well that the effects of any future crises will be minimised.
Thus, is there an increased concentration of risk among other agents, such as pension fund companies and hedge funds, where this could create a problem? In general, the risks come to those who can manage them and therefore bear the risks. The question if whether we who oversee the system and those who operate in the markets know when risks arise? How do these developments affect our stability work? The reason I have chosen to talk to you about these issues today is partly that developments in the financial markets affect one of the Riksbank’s main objectives – to promote a safe and efficient payment system. The work on achieving this objective entails identifying potential risks in the financial system and assessing resilience to possible shocks. Our analysis is concentrated on the major banks, as they play a central role in the system. We are now – even in Sweden – more dependent on the financial markets. Although many of the tendencies I have mentioned are not as tangible here, we can still be affected by events in other countries, as in the case of autumn 1998. There is scarcely any doubt that the changes that have occurred have contributed to making the markets more efficient. This is good for the economy as a whole, very good even. The markets have probably also become more robust, with the risks better spread over the economy. Events in recent years would indicate this is so. However, financial crises can never be entirely avoided. They will recur.