With regard to legislation, I also believe that further supplementary measures will be needed in future. I will return to this later on. During the recent financial turbulence the Riksbank has not only had regular contacts with other authorities and the political system – we have also had closer contacts with market participants than usual. Central banks around the world have also had close cooperation with regard to reducing the strains in the financial markets in various ways. So what have we at the Riksbank done to make the markets function better? Improving the functioning of the markets The Swedish banks have mainly experienced two problems. One has been the lack of access to more long-term funding in Swedish kronor. The other has been the limited possibilities to borrow in US dollars. As I mentioned earlier, it has been much more difficult and costly for the banks to obtain financing other than at very short maturities. The banks’ possibility to finance themselves is of course important to financial stability. It also affects other interest rates in the economy and thereby the impact of monetary policy. We at the Riksbank try to counteract these effects of the financial turmoil. We have therefore offered the banks financing – against collateral and at an interest rate – at longer durations than normal, and than what is currently available in the markets. We have so far granted loans in Swedish kronor at maturities of three months and six months to a total of SEK 203 billion.
When goods are transported to consumers via our physical infrastructure, such as the road network or by air, the payment for the product is sent to the end recipient by means of the “financial infrastructure”. If the financial infrastructure did not function, the economy would more or less grind to a halt. The financial system also makes it possible to manage various risks that can arise in the financial markets. This is important to both households and companies. Another important function is to be able to save and borrow money via the financial system. This gives households and companies the possibility to distribute incomes and consumption over time. The funds that are saved can be borrowed by companies and households to finance various investments which can then create employment and growth. When there is distrust and disturbances in the financial system, this function may be impaired, which can  BIS Review 138/2008  1  lead to a credit crunch. First the financial sector is affected, but then it gradually becomes more difficult for households and companies to borrow, too. Consumption and investment then decline, which can lead to a substantial economic downturn. A credit market that functions well is thus an important condition for good growth. To summarise, one can say that the financial system’s functions are very important for economic development. It is important that the system is stable for our society to function properly on the whole. But financial stability is something that most people probably often take for granted.