It has recently become slightly easier for the banks to issue at longer maturities both in Sweden and other parts of Europe. In the United States, too, the issue volumes in the commercial paper market have increased. The Swedish mortgage spreads have also declined. We can thus see positive effects of the measures taken, although there appears to be a long way to go before the crisis has run its course. However, looking ahead to future crises – and I do not believe that we can entirely avoid crises occurring in the future – it is desirable that we acquire a better preparedness. If there is one thing we have learned from this crisis it is that we need to have in place regulatory frameworks for managing banks in distress. Such regulations should include several different aspects, everything from a deposit guarantee system to insolvency procedures for banks. 4  BIS Review 149/2008  Above all, the crisis has pointed to the need for cross-border cooperation. We have seen examples of this in Europe. This type of cooperation on crisis management should begin in “peace time”. Contacts that have been cultivated already and a common parlance may be decisive factors in determining how efficiently a crisis in a cross-border institution is handled. It is also important to hold joint crisis exercises, using different scenarios.
The predominant view has probably been that one should not use the interest rate to try to counteract a credit boom that is expressed in rapid price increases on houses or financial assets. This view is based on the fact that it is difficult or almost impossible for a central bank to determine whether a credit boom has its base in the real economy or whether it is due to unrealistic expectations of continuing price increases. Instead of trying to deliberately burst the bubble, one should use monetary policy to counteract the negative effects that may result if it bursts. The disadvantage of this reasoning is that the negative effects when the bubble bursts may be fairly substantial – which to a large degree is illustrated by the current financial crisis. It is also difficult to deny that the long period of low interest rates in the world prior to the crisis may have contributed to an unreasonably high build-up of credit. With hindsight, this view does not appear so controversial. Does this mean that monetary policy can and should be used to prevent financial crises? I believe that monetary policy can be a complement to other measures when overly large risks appear to be building up in the financial sector, but that the main responsibility must lie with other methods of regulating the relationship between capital and risks. The emphasis here is on regulatory frameworks and supervision.