Ingves: The crisis in the Baltic – the Riksbank’s measures, assessments and lessons learned

In connection with a hearing in the Riksdag Committee on Finance, the Governor of the Riksbank Stefan Ingves made a speech on the crisis in the Baltic countries, the assessments that the Riksbank has made, the measures that have been taken and the lessons that can be learned.

The Riksbank detected at a relatively early stage that the Swedish banks’ lending in the Baltic region was not sustainable and that it would lead to significant risks. We took a number of measures, although they were all of a ”soft” nature, such as discussions with the banks, with the authorities in the Baltic countries and with Finansinspektionen. However, it became clear that these measures did not have the intended effect. The Riksbank lacks sharp, legally-binding instruments for dealing with the banks in these situations. Prior to autumn 2008 there was also no Swedish framework for crisis management, and there are still significant shortcomings in the public management of individual banks in distress, which became clear in the case of Custodia. The Riksbank is currently analysing what further tools might prove necessary. The Riksbank is also considering how our messages regarding risks to financial stability can be made clearer.

One lesson learned from both the global crisis and that in the Baltic countries is that the regulation and supervision of the financial sector must be strengthened. This entails, for instance, more and better capital in the banks, stricter requirements regarding the banks’ liquidity and risk management in general, as well as stricter supervision of large, cross-border bank groups.

Read the whole speech in the PDF file below.