About financial stability
There are many reasons why it is important for the financial system to be stable. The financial system fulfils a number of functions that are essential to society.
The three most important functions are usually said to be:
Converting savings into financing,
Managing risk and
Supplying efficient means of payment.
If any of these functions suffers a serious shock, the costs to society can be considerable. With regard to the function of the payment system, the Riksbank plays a special role. According to the Sveriges Riksbank Act, the Riksbank shall ”promote a safe and efficient payment system”. The payment system covers the entire infrastructure of marketplaces, institutions, payment instruments and the technical and administrative systems used to make payments and transfer securities.
The Riksbank has been given responsibility for this task because:
The Riksbank is the authority in Sweden that issues banknotes and coins and
The Riksbank acts as bank for the other banks.
It is important that payments can be made safely and efficiently to enable the economy to function smoothly. The smoother and safer the transactions are, the lower the costs and the risks in producing goods and services will be. This benefits growth and employment in the long term.
A necessary condition for a safe and efficient payment system is that there is stability in the financial system as a whole, especially among the financial institutions supplying payment services. The fact that the stability of the financial system may sometimes be threatened is clearly exemplified by the Swedish banking crisis at the beginning of the 1990s. The government was then forced to intervene at short notice to save the banking system from collapse.
The financial system has become increasingly complicated and difficult to monitor. At the same time, society has become more vulnerable to shocks linked to financial markets and financial institutions. This means that it has also become more important to understand the risks and threats to the stability of the financial system. The Riksbank works in many different ways to promote stability in the financial system.
If you wish to know more about the Riksbank’s various methods of working to promote financial stability, click on the heading How we work.
If you wish to know more about the Swedish financial system and how it works, click on the heading The Swedish financial market.