Stefan Ingves: Financial stability is important for us all Speech by Mr Stefan Ingves, Governor of the Sveriges Riksbank, to the Riksdag Committee on Finance, Stockholm, 15 March 2012. *  *  *  Today, I would like to give you a few examples from Sweden and abroad to illustrate why financial stability affects us all, not least in our role as consumers. It can easily happen that discussions of bank regulations, not least at the EU level, can be considered difficult to understand. This is partly because the discussions are often technical, and partly because they can seem abstract. I would like to demonstrate how the political framework for financial stability very strongly affects Swedish banking customers – in other words, almost all households. Crises cost society enormous amounts As financial crises are very costly for the citizens of a society, we should try to avoid them at almost any price. The financial system forms the cornerstone of a modern economy. Its basic functions are converting savings to investments, managing risks and mediating payments, functions that we all constantly come into contact with every day, in one way or another. A functioning financial system is also necessary for the repo rate, which is to say monetary policy, to have an impact. A modern society cannot do without the functions of the financial system. Without the financial sector, Sweden would grind to a halt. But the system also entails risks. Banks are dependent on confidence, are highly leveraged and are thus vulnerable.
Directors must devote their time to the bank, cannot be a director of more than three other profit-seeking companies, as well as disallowing of borrowing where cross ownership is more than one percent of the paid up capital of the borrower. Of the 92 people involved, 53 have now complied, and arrangements have been made for most of the others to comply, with the possible exception of the representatives of the Ministry of Finance who may find that their representatives are not the sort of people who can devote that much time to the bank because they are not part of the ownership or operation of the bank, but are just government representatives. We are looking into this and will discuss with the Ministry when the time is right. The problem in fact is not as innocuous as it looks as state bank remunerations are affected by considerations other than just how should directors be rewarded so that shareholders’ value can be maximised. But all this is being done through sanctions and coercion, and in the New Commercial Bank Act the authority will be explicit. My last words on commercial banks, the intervened banks might not yet be completely taken care of, but at least the cost of rescue can now be well estimated. The proper financing of the debt burden is probably one of the first jobs of the new government.