We need to ensure that when the next economic downturn occurs, the financial system will bend, but not break. Of course, increased resilience does not come without costs. It is important to continually reassess whether those costs are appropriately balanced with the evolving risks. There are a number of potential areas that may be worth reassessing. One place to start is with regulations pertaining to smaller banks. People of all political stripes tend to agree that Congress and regulators should reassess the effect that regulations have had on these firms and whether such regulations are commensurate with their level of risk. For these smaller banks, whose failure will not directly inflict large costs or stress on the broader financial system, the regulatory and compliance requirements should be reconsidered. Indeed, banking agencies have announced many proposals for small banks,11 including one that would simplify the capital rules for such banks consistent with their risk.12 With respect to systemically important firms, I think it would be terribly myopic to forget the crisis. There have been a number of different types of changes proposed with respect to these firms. Today, I’d like to focus on the proposals relating to resolution regimes. Congress established OLA when memories of Lehman Brothers’ failure were fresh.
(2021). Several of the world’s large economies are now in a period of slower labour force growth, making it less profitable for companies to undertake major investments. Even if savings are falling, companies’ incentives to invest are declining even further. The prediction is therefore that the global real interest rate will fall for a long time to come. 6 When the inflation target was introduced at the beginning of the 1990s, the Riksbank had support from the then prevailing economic crisis, in the sense that inflation was pushed down to a level close to the target, making the task then ‘only’ to try to keep inflation at this level. 4 [15]  way that companies set their prices and the wage demands that households put forward. The inflation that results from the inflationary price-setting and wage formation confirms expectations and in turn affects the new expectations of future inflation. This gives a new round of effects on price-setting and wage formation, and the high inflation thus becomes a self-generating process. One reason why the high inflation was built into expectations among households and companies was that it was not sufficiently counteracted by the overall economic policy. Instead, this policy became systematically too expansionary. At that time, Sweden had a fixed exchange rate. The idea was that this would have a disciplinary effect on price-setting and wage formation: If Swedish prices and wages increased faster than prices and wages abroad, our competitiveness would weaken, exports would decline and unemployment would increase.