The main purpose of the Riksbank’s analysis of threats to the stability of the financial system is to prevent serious crises from arising in the financial sector. However, the possibility of a crisis arising at some point in the future cannot be entirely ruled out. A crisis situation can arise unexpectedly and spread rapidly to other areas of the financial system.
At the beginning of the 1990s, the government had no prepared routines for managing the critical situation that arose in the Swedish banking sector. Instead, the government authorities’ were to a large extent forced to react to circumstances as they arose. After the event, we can see that the final negative consequences of the crisis were relatively moderate. The fact that the outcome was not worse was partly due to a number of fortunate interacting circumstances. One was that it was possible to rapidly attain political unity regarding management of the crisis.
Unfortunately, we cannot assume that external conditions will always be this favourable. It is therefore important to be well-prepared in order to alleviate the effects if a financial crisis arises. When a crisis breaks out, it is important, for instance, to rapidly establish efficient communication channels and a clear allocation of responsibility between the authorities concerned.
The Riksbank is the authority that can provide emergency liquidity assistance to financial companies experiencing liquidity problems. This gives the Riksbank a potential key role in the event of a financial crisis. It is usually said that the Riksbank can in such cases act as lender of last resort. The possibility to provide emergency liquidity assistance can be an important means of preventing contagion effects from a financial crisis, but it can also lead to undesirable effects on the banks’ risk-taking. It is therefore important measures are not taken unnecessarily and that the routines and conditions for granting emergency liquidity assistance are well-founded.
Financial companies increasingly conduct cross-border operations. This means that crisis management, emergency preparedness and oversight must all be adapted, and agreements must be reached between authorities in different countries.