Öberg: My views on the Riksbank and financial stability
On Monday, First Deputy Governor Svante Öberg held the speech “My views on the Riksbank and financial stability”. He put particular emphasis on three changes that he says may increase the possibilities of preventing and managing new financial crises in Sweden.
Firstly, Mr Öberg considers that the Riksbank and Finansinspektionen should be merged. Such a merger would allow the authorities to act more forcefully to safeguard the stability of the financial system. A new arrangement would be particularly important following the introduction of new cyclical tools. If these new tools are to be handled by Finansinspektionen, this would give us, in practice, two central banks, says Mr Öberg, one subject to the government and the other independent of political bodies. A merger would allow us to avoid having two central banks which, under unfortunate circumstances, could be pulled in different directions. Further advantages of merging the two authorities would be to ensure a high level of macroeconomic expertise and to focus more resources on Finansinspektionen’s tasks in the management of issues of this type.
Secondly, Mr Öberg considers that the Governor’s role should be strengthened. The Riksbank is currently governed by an Executive Board of six persons, with the Governor as chairman. This is an unusual form of management in Swedish public administration, which is mostly justified in terms of monetary policy. But it is not an appropriate way of leading an authority.
“Quite simply, I believe that the managerial structure has been the product of faulty logic, right from the start. With the benefit of my years at the Riksbank, I think that the role of Governor, as head of the Riksbank, should be strengthened to correspond with the role played by a normal agency head”, said Mr Öberg.
The third issue that Mr Öberg addressed was that the Riksbank should have a sufficient foreign currency reserve. The financial crisis made abundantly clear that the foreign currency reserve was also needed to provide the banks with liquidity in foreign currency in the event of a crisis. This is a matter of the central bank’s fundamental function as lender of last resort. It can no longer be seen as only being a matter of liquidity in Swedish kronor. The Riksbank’s gold and foreign currency reserve was not enough to meet the need for dollars that arose during the crisis.
You can read the entire speech in the PDF file below.