This mechanism is often described in terms of three different channels: the interest rate channel, the credit channel and the exchange rate channel. These channels are intertwined with each other and the division is mostly for explanatory reasons. The interest rate channel can be used to influence the cost of saving and borrowing. A lower interest rate means that it becomes less expensive for companies to finance investments and for households to borrow for consumption. Lower interest rates normally also make saving less attractive. 6  BIS Review 41/2009  Interest rate changes also affect the economy through the credit channel. Lower interest rates generally increase the net present value, that is the value today, of the cash flows that financial assets are expected to generate in the future. Lower interest rates also increase the demand for real assets, for example housing. In this way, the prices of both real and financial assets increase. As these assets are used as collateral for loans, the creditworthiness of households and companies also increases. This leads banks and other financial institutions to be less restrictive in their lending and means that they can lend more. This in turn stimulates investment and consumption and thus increases inflationary pressures in the economy. Through the exchange rate channel, monetary policy can influence the value of the currency. Normally, a reduction of the repo rate leads to a weakening of the krona. This is partly because Swedish assets appear less attractive than investments in other currencies.
Financial institutions have been asked to review their customer accounts for tax-illicit funds. One of the practical difficulties faced by financial institutions is how to determine whether a given pool of funds is fully tax compliant, when even a tax lawyer may be hesitant to make a call, unless he has full visibility of the customer’s other transactions beyond the bank. International guidance on this area is still evolving, and the process to become more proficient in detecting tax-illicit monies will understandably be an iterative one. 18 Nonetheless, we have found the quality of the recent tax risk reviews to be satisfactory, and I like to commend you all for the efforts put in. More importantly, this exercise has raised general awareness among financial institutions, which are now better prepared to manage risks arising from the laundering of proceeds from tax crimes. Arising from the review, a handful of customers may have chosen to close their accounts or even have had their accounts terminated – if they chose not to be subject to the heightened scrutiny. Suspicious Transaction Reports have also been filed in a few cases. Overall, the message is clear and consistent – tax-illicit funds are not welcome here. BIS central bankers’ speeches  3  Partnership with the industry 19 We need to work together to tackle financial crime. At the government level, law enforcement agencies meet regularly with the financial and non-financial sector supervisors to coordinate policy, so that we effectively deter illicit funds as a country.