The impact of employee misconduct extends beyond the individual and can impact the firm as a whole, as well as the economy and financial markets more broadly. That is, misconduct risk has both prudential and financial stability implications. For a firm, employee misconduct can make it less resilient by diverting management attention, by harming the firm’s reputation in a way that impedes its business, by driving adverse change in the composition of the workforce, or by depleting its capital through losses or fines. Since 2008, 1/5  BIS central bankers' speeches  for example, firms have paid, in aggregate, in excess of $ billion in fines related to misconduct.2 For the broader economy and financial markets, misconduct can inflict harm directly on consumers and employees. In addition, over time, market participants may lose confidence in the financial sector as a whole and adversely impact the sector’s critical role in financial intermediation. In 2016, for example, Gallup found that confidence in the financial sector had fallen by half over the previous decade.3 These incidents of misconduct can introduce frictions and raise the cost of financial intermediation, which in turn, reduces the flow of productive financial services. These sorts of external effects that spill over to other firms, consumers, and businesses are a critical rationale for official sector intervention related to employee misconduct. In the U.S., official sector concern with the damage inflicted by employee misconduct dates back to the Banking Act of 1933.
Background to the current system During the post-war era the exchange rate norm was supervised by international agreements through Sweden’s membership of the International Monetary Fund (IMF), and the Bretton Woods system. That meant that devaluations were only allowed in the event of fundamental structural problems or imbalances. So the Bretton Woods system limited the opportunities for individual countries to devalue their way out of a cost crisis. Instead, the countries were offered loans from the IMF on tough terms. For Swedish wage formation, this was a successful period. The Swedish Trade Union Confederation and other employee organisations/trade unions, as well as the Swedish parliament and government, were aware that the strict regulations did not permit devaluation, which had a disciplinary effect on Swedish wage formation. The Bretton Woods system was based on an arrangement whereby the US dollar had a fixed value in terms of gold and the currencies of the other countries in turn were pegged to gold via a fixed exchange rate with the dollar. When the US was forced to abandon its dollar peg to gold in the early 1970s after having borrowed large amounts to finance the Vietnam War, the Bretton Woods system collapsed. Thereafter, Sweden independently adopted other exchange rate regimes, all of which gave greater freedom than the Bretton Woods system. That resulted in less discipline in wage formation. What then does it mean to have a fixed exchange rate?