In addition, the critics often speak of this sector as though it did not play any productive role, but was more or less disengaged from the rest of society. This is not the case. The financial sector is very much an integrated part of society. We participate in it ourselves when we, for instance, choose between different pension funds, when we withdraw money from an ATM, when we pay our bills or borrow money to buy a house or apartment. To begin with, therefore, I shall briefly discuss the fundamental tasks carried out by the financial sector in society. When we economists try to mediate knowledge in this field, we usually talk about three tasks or roles, namely mediating payments, channelling money from those wanting to save to those wanting to invest, and facilitating the management of economic risk. Easier payments and more investments The financial sector as a mediator of payments is possibly the role where the sector's significance for society is easiest to understand. Try to imagine an economy without the type of payment system offered by, for instance, postal giro and bank giro. In a world like that we would need to carry large amounts of cash around with us in order to make our daily transactions. We would have to rush off to the landlord once a month to pay rent, visit the telephone company to settle the telephone bill and queue in front of the TV building to pay our TV licence.
Many people have claimed in this context that companies in countries, which have recently deregulated their capital markets, have a tendency to take on more loans than they can manage. This does not appear to be the case. On the contrary, empirical research indicates that while non-financial companies with access to the international capital market increase their borrowing, their equity increases at the same rate. It also appears that these companies increase the duration of their loans. In this perspective, it is difficult to imagine that the risk of taking out excessively large loans increases as a result of deregulation. The various types of funds managed by many of you make a contribution to this, by supplying share capital to companies in other countries. 2  BIS Review 75/2001  Economic policy content of crucial significance Allow me to return to the criticism of developments on the financial markets. As I said, it cannot be dismissed out of hand. It is evident that there are some problems in the way these markets function. One only has to look at the Mexico crisis of 1995 and the Asia crisis of 1997-98 to see that. It is, however, important to remember that the origins of the crises lay in domestic problems in those countries that were hardest hit. In Asia, as was the case here in Sweden at the end of the 1980s, the countries developed a financial vulnerability through rapid credit expansion, over-investment in certain sectors, grossly inflated asset prices and short-term borrowing abroad.