Changes in production methods, including an altered pattern for adapting stocks and new technology, may have enabled the demand and supply for both goods and capital to be matched more quickly than before, which contributes to the milder downturns and longer upswings. A further factor that could have contributed is that the percentage of services in GDP has increased and the production of services has shorter lead times. Expansive economic policy - good years for the Swedish economy A low inflation rate and tidy public finances have provided room for manoeuvre when facing a downturn in economic activity. A changeover towards a more expansionary economic policy in a large number of industrial nations has laid the foundation for the recovery this year. In the USA there was a substantial change in monetary policy at the beginning of 2001. On top of this came considerable fiscal policy stimulation. Monetary policy in Europe and Sweden has also been expansionary. However, many large countries in Europe are still struggling with large budget deficits, which have limited their fiscal policy scope for action. Last year Sweden had one of the largest surpluses on public savings in the EU. This has enabled an expansionary fiscal policy. This year households’ disposable incomes are expected to increase by almost 5 per cent, almost 80 per cent of which comes from increased transfers and lower taxes and charges. Such a large increase in income has only happened on a few occasions over the past decades.
The global financial crisis highlighted a series of weaknesses in regulation, including most notably high bank leveraging, excessive credit growth (boosted in part by lax lending standards), a high degree of systemic risk and insufficient liquidity levels. The FSB and the Basel Committee have been developing a set of reforms involving, first, the adoption of more demanding criteria as regards the levels and quality of capital required of banks; and, further, a reassessment of the general framework, thereby acknowledging the need to complement the solvency ratios with other measures. Among these measures we may first mention the leverage ratio, which purports to be a simple, transparent and complementary metric to the risk-based capital ratio. Second, given the lack of liquidity risk regulation before the crisis, the Basle Committee decided to adopt two new ratios: one geared to ensuring the coverage of liquidity needs in the event of tensions (over a 30-day period); and the other aimed at achieving a financing structure suitable for the activities of each institution. Finally, the Basel III regulatory framework has included a new micro-prudential facet with twin aims. The first, to consider the impact that problems at a very large or complex institution may have on the rest of the financial system; and the second, to attempt to avoid the tendency of banks to excessively increase their risk during the cyclical upturn.