When the  2  BIS Review 125/2008  markets deteriorate or cease to function in this way, individual financial institutions are also hit hard, especially the banks. We have seen the consequences of these developments now during the autumn, causing central banks and governments to take powerful measures to avoid a full-scale systemic crisis. Although most banks have satisfactory solvency levels today, the turmoil has developed into a serious liquidity crisis, based on distrust of the banks' ability to survive in the future. The entire problem can actually be summarised in a single word; confidence. Currently there is a lack of confidence in the financial sector as a whole. So what needs to happen to restore confidence? Before I attempt to answer that question, I thought I would say a few words about the situation in the Swedish financial system and about the role of the Riksbank and other Swedish authorities. The situation in the Swedish financial system Even if the situation has worsened in recent weeks it is important to remember that the Swedish financial system is far from the epicentre of the crisis. According to Finansinspektionen (The Swedish Financial Supervisory Authority) – and according to our own assessment – the Swedish banks continue to have strong balance sheets. Their capital situation is strong, credit losses are low and profitability has reached historic highs. The Swedish banks have been relatively conservative in their lending, and have not been exposed to any great extent to the worst-hit markets or institutions.
So that means Greece would not even need to be included in the government bond buying programme? C.N. Don’t jump the gun! The first question for the Governing Council is: should we decide to launch it? My personal reading is that if we were to decide to have a government bond buying programme, we should have a cap in terms of the percentage of what we would be buying, so that most of the financing will continue to rely on the private market. That would mean a relative limit of outstanding debt of each country? C.N. Yes, in my view, such a programme can be launched only if a majority of the debt were to continue to be held by private investors. So it should not be an absolute figure like 500bn? C.N. Personally I do not put too much trust in the absolute figures regarding caps. For me there is only one objective: to maintain price stability. That means we both need to have the credible prospect of returning to our objective of close to but lower than 2 per cent inflation, and we must ensure that expectations are not disanchored. If, thanks to the fall in the oil price, inflation, which was already very low, were to remain too low for too long, we would need to act to continue to ensure the credibility of our goal. There doesn’t seem to be a consensual view in the Governing Council? C.N.