af Jochnick: Financial stability and long-term growth from a central bank perspective
"The financial crisis of 2008 surprised not only the Riksbank but also the financial market, politicians and the general public. Nobody had suspected that the financial system was so vulnerable – or that the crisis would lead to such low growth over the entire world for such a long period." These are the words of First Deputy Governor Kerstin af Jochnick when she participates in the annual meeting of the Swedish Bankers' Association on Wednesday.
Ms af Jochnick notes that the last crisis, like that of the 1990s, has led to lower long-term growth in Sweden than would have been the case had the crises not occurred. "It takes time to catch up on lost growth", she states.
Important to introduce strengthened regulations for financial stability
Under the framework of the Financial Stability Board (FSB) and the Basel Committee, comprehensive work is now being undertaken to strengthen international regulatory frameworks and the supervision of financial companies to prevent and manage similar crises in the future. The Basel Committee is on the way to completing its reform efforts: the overall regulatory frameworks are in place, although there is some work left. Among other matters, the Basel Committee is now reviewing the risk-based regulatory framework and working on completing the standard methods for the calculation of credit risk, market risk and operational risk. It is also working on completing the calibration of the regulatory framework, for example by setting a final minimum level for the leverage ratio requirement.
Financial stability in Sweden is dependent on the new regulations now being introduced. "It is important that we have robust banks - which have enough capital and liquidity - and also an efficient infrastructure", says Ms af Jochnick. "This contributes towards continued high confidence abroad, thereby making it easier for the Swedish banks to manage their major dependence on wholesale funding."
Long-term challenges for the Swedish economy - the housing and labour markets
Ms af Jochnick concludes by observing that the long-term structural challenges for the Swedish economy can be found both on the housing market - with the associated high debts among households - and on the labour market. "Joint efforts will be needed from different areas of society to manage these challenges. The highly expansionary monetary policy is contributing by increasing demand in the economy, reducing unemployment and creating a clear upward trend in inflation", she concludes.
Follow the adjoining link to see the slides Ms af Jochnick is showing at the annual meeting of the Swedish Bankers' Association.
