This describes our assessment of the stability of the financial system, as well as various risks and threats to this stability. From an international perspective, the Riksbank’s work on stability analysis has been at the cutting edge.1 We were the first central bank in the world to publish a stability report, and we  1  See, for example, Allen et al. (2004), who have carried out an independent assessment of the Riksbank’s stability work. BIS central bankers’ speeches  1  were also among the first to carry out stress tests describing the banks’ resilience to various types of shock.2 Assessing the banks’ credit risk, which is to say the risk that the banks would not recover the money they had lent, was an important part of this analysis work. It was just this kind of risk that had led to such large losses for the banks in the banking crisis at the start of the 1990s. Consequently, the risks we emphasised in the stability reports were primarily associated with credit risk. We warned of the risks but missed the one that would give us problems In the years leading up to the financial crisis, we made overall assessments along the lines of “financial stability in Sweden is satisfactory” (Financial Stability Report, June 2008). The four Swedish major banks (Handelsbanken, Nordea, SEB and Swedbank) were profitable and hade enough capital to withstand possible shocks. However, we also pointed out risks, sharpening our tone when the risks became more apparent, just before the crisis.
The Swedish National Debt Office issued treasury bills to meet the demand that had arisen for liquid assets. Finansinspektionen amended the regulations for financial companies (to make it easier for them to strengthen their capital bases) and for insurance companies (to reduce shocks to the bond markets). The government and the Riksdag decided to extend the deposit guarantee scheme and to introduce a comprehensive stability plan. Important elements in the stability plan were a guarantee programme for the funding of banks and mortgage institutions, a stability fund, and principles for the management of capital contributions to credit institutions. The Swedish National Debt Office was given a central role in this work as responsible authority for the new guarantee system, the stability fund, and any capital contributions. The extraordinary measures were phased out The Swedish economy made a strong recovery in 2010 and the banks no longer needed to borrow from the Riksbank to manage their funding needs. The Riksbank thus phased out its comprehensive lending to the banks during the summer and autumn of 2010. This phasing out was comparatively simple because, unlike many other central banks, we had not purchased any securities. When the loans expired, the banks repaid their loans, with the whole process taking place comparatively smoothly. The repo rate started to be raised in July 2010.