The financial system
The financial system consists of banks and other companies (for instance insurance companies and mortgage institutions) and financial markets (such as bond markets and stock markets). It also consists of financial Infrastructure in the form of technical systems required to make payments and exchange securities. The system also includes the financial regulatory framework with legislation, regulation and other standards.
Three main tasks
The financial system has three main tasks that are of central importance for the economy to function and grow:
- mediating payments
- converting savings into funding
- managing risks
The financial system creates the right conditions for payments to be made quickly, smoothly and safely, which is necessary to ensure that the economy as a whole functions efficiently. If, for example, wages and bills could not be paid on time, chaos would rapidly ensue in the economy. It is a question of both payments between banks and other financial institutions (usually of large amounts) as well as payments between private individuals and/or companies (usually of comparatively smaller amounts).
Converting savings into funding
Both private individuals and companies need to borrow money. Young people may need to borrow money to invest in housing and education. Companies may need to borrow to fund a project or to realise an invention. At the same time, there are people who want to save for pensions or consumption. There are also companies that want to save for investments. Here, the financial sector's task is to help channel savings into investments in an efficient manner.
Companies and private individuals also need to protect themselves against different kinds of risk. For example, private individuals may need to insure themselves against fire or theft. And companies may need to protect themselves against different kinds of economic risk such as adverse changes in commodity prices or exchange rates. They can do this at insurance companies that specialise in the assessment and management of insurance risks. In this way, the financial system helps households and companies to spread and redistribute risks to those agents that are best suited to carry them.
The financial system is sensitive
It is in the interests of society that the financial system as a whole functions stable and efficient for private individuals, companies and other market participants. This is because a serious crisis in the financial system risks leading to extensive economic and social costs.
The stability of the financial system is based on the confidence of both the public and the market. The basic requirements for confidence are sound institutions and efficient markets.
The Swedish Financial Market
The Swedish Financial Market is a brochure that describes various roles and functions in the Swedish financial system. For instance, it describes the stock market, the fixed income and foreign exchange markets, including the derivative markets, the banks, the insurance companies, the securities companies and the large payment systems within Sweden. The most recent edition of the Swedish Financial Market is from 2016.