Wickman-Parak: Financial Stability in focus
Financial stability in focus – a summary
Hardly any of the authorities around the world predicted the extent and complexity of the current financial crisis. The indications that risks and bubbles were developing that could nevertheless be discerned here and there were not strong enough to convince enough people of the need for countermeasures. The regulation and supervision that has existed has proved inadequate to prevent either exaggerated risk taking in upturns or destructive herd behaviour in downturns. The global extent of the current crisis points to the need to further develop international cooperation regarding financial regulation, supervision and crisis management.
The authorities must become better at gathering and analysing information about conditions in the financial sector and the rest of the world in order to be able to better assess the risks of future crises in the financial system. However, it is not only a matter of discovering and understanding the risks. Various proposals that aim to counteract the development of risks are now under discussion in international forums. These proposals relate to various way of affecting the risk behaviour of the financial sector and to more or less automatic mechanisms that can counteract the procyclical characteristics of the financial system. Work is also now underway in Europe to set up a new body, the European Systemic Risk Board. One of the tasks of this board will be to gather and analyse information that may be of significance to the stability of the financial system in the EU.
Since the bank crisis of the 1990s, the Riksbank has developed the tools its uses to promote financial stability. But these tools are largely "soft". They entail persuading and convincing those concerned with good arguments. However, when times are good it may be tempting to ignore the warnings of the authorities and it may be difficult to resist the opportunity to expand when all the indicators are positive. The Riksbank may therefore have reason to think about different ways of achieving a greater impact for its analyses and assessments of the behaviour of the financial players in the future.
An effective financial sector contributes to growth and prosperity in the economy, and it is indisputable that more effective regulation and supervision is now required. It is important, however, that the changes in the regulatory structures that are now being implemented are balanced and well considered. It is important to avoid the sum total of all the regulations that are introduced restricting growth or, in the worst case, giving rise to new crises. It would be a mistake to underestimate the inventiveness of the financial sector and its ability to circumvent regulations of different kinds. Producing a regulatory framework that makes the financial system safer and more secure without losing important welfare gains is really the major challenge that the authorities now face.
You will find the whole speech in the pdf-file below.
