But the facilities have not been a panacea for three reasons. First, the facilities cannot address the fundamental problem – the shortage of capital in the banking system. The facilities can slow down the deleveraging process, but until the banking system is viewed as being sufficiently well-capitalized and is able to expand its lending activity significantly, the limits on credit availability caused by an impaired banking system will make it more difficult to generate a sustainable economic recovery. Second, there are limits on what the Fed can do legally. For example, the Fed can only lend if it is secured to its satisfaction. There has to be sufficient collateral available. The Fed cannot lend on an unsecured basis or provide guarantees. And the Fed cannot purchase assets other than Treasuries, agencies and agency MBS, and short-dated general obligations of states and municipalities. Third, the effectiveness of some of the Fed facilities have been undercut by stigma – the discount window is the best example of this – or by worries about what other strings are or might be attached to the use of the facilities – the TALF comes to mind in this respect. BIS Review 48/2009  3  One reason why the TALF has gotten off to a relatively slow start is the reluctance of investors to participate. Issuers’ interest, not surprisingly, dwarfs investor demand at this stage of the program.
Mr Bäckström covers monetary policy in Sweden from 1996 to 1998 Opening remarks by Mr Urban Bäckström, Governor of Sveriges Riksbank, the Swedish central bank, before the Standing Committee on Finance in Stockholm on 18 May 1999. Introduction In the period 1996–98 the annual rates of inflation, measured with the CPI, were 0.8, 0.9 and 0.4 per cent, respectively. This means that in each of these years the change in the CPI not only deviated from monetary policy’s 2 per cent target for price stability but was also outside the lower tolerance limit of 1 per cent inflation. The Riksbank has indeed made assessments that subsequently proved to be a bit off the mark. As a result we have also made decisions that, looking back when the outcome was known, could have been somewhat different. But on the whole, the result of monetary policy in this period seems to be acceptable. In my opening remarks I intend to give this appraisal more substance. One major reason why CPI inflation has been low in the past three years is that the price trend has been affected by some specific price movements that monetary policy neither can nor should aim to counter fully. If the Riksbank attempts to counter such price movements, the result might be unnecessarily costly for the economy, that is, exaggerated fluctuations in economic activity as well as in the financial markets. It was against this background that the new Executive Board of the Riksbank clarified the inflation target earlier this spring.