Swedish Financial System A countrys financial system is an intermediary that channels savings efficiently to fulfill the broader investments

and consumption needs of society at large. Swedish financial industry made up a total of 4% of the GDP of the country in the year 2011. It employs around two percent of the total workforce of the country. The following table shows the groups of companies in the Swedish financial market, measured in total assets. Banks clearly grab the largest chunk, amounting to 40% of the total assets of financial market in 2011. Players in the financial market Banks Mortgage credit institutions Insurance companies Mutual fund companies AP Funds Other credit market companies Percentage share 40% 16% 20% 11% 7% 6%

Swedish Banking System Sweden had a total of 117 banks at the end of 2012. There are four main categories of banks in the Swedish market : Swedish commercial banks Foreign banks Savings banks Co-operative banks
Foreign banks Subsidiaries Branches Savings banks Co-operative banks

Commercial banks The four big banks Savings banks converted to joint stock cos. Diverse business focus and ownership structure

Swedish commercial banks There are three categories of commercial banks in Sweden . The first category comprises of the largest four bank, namely, Swedbank, Handelsbanken, Nordea and SEB. They are an important and active part on most segments of the financial market. The second category is of the savings banks which are now converted into joint stock companies. The third category is made up of other Swedish commercial banks which have a diversified business focus and ownership structure. Foreign banks Initially, when foreign banks were allowed in Sweden, they could only open subsidiaries. After the financial crisis of 1990s, they were permitted to open branches. Towards the end of 2012, there were a total of 29 foreign banks in Sweden. Danske Bank is the largest foreign bank in the country and fifth largest bank overall.Mostly, the focus of foreign banks is on corporate banking and securities market. Savings banks Sweden has a large number of independent savings banks. Often they cater to the regional or local markets, owing to their smaller size. Many savings banks operate in co-operation with Swedbank. Lately, the number of savings banks has declined because of merger of small savings banks. Co-operative banks A co-operative bank is an economic association that has as its purpose to produce bank services for its members. To be able to use the bank services of a co-operative bank the customer must become a member by paying a member share. There are two small co-operative banks in Sweden.

The table below highlights the number of banks in different categories in Sweden in 2000 vis-vis 2010 Type of bank Swedish commercial banks 2000 (Dec) 22 2010 (Dec) 37

- of which four big banks - of which former savings banks - of which other Swedish commercial banks Foreign banks - of which subsidiaries - of which branches Savings banks Co-operative banks TOTAL Source: The Swedish Financial Supervisory Authority

4 9 9

4 14 19

21 2 19 79 2 124

29 2 27 49 2 117

The tasks and role of the Riksbank: Swedish central bank The Riksbank is Sweden's central bank and is a public authority under the Riksdag, the Swedish parliament. Riksbank has been given an independent status by Riksdag. This implies that the Executive Board of the Riksbank makes the monetary policy decisions without instruction from any other parties. The Riksbank's main objectives are as follows: Maintaining the value of money price stability Riksbanks primary function is to maintain price stability. This is done by keeping inflation levels to be low and stable. Its specified inflation target is that change in the consumer price index (CPI) should be 2%. The bank aims its monetary policy will contain inflation as well as support the objectives of general economic policy in order to achieve a sustainable growth rate and a higher rate of employment. The Riksbank uses tools like its policy rate, the repo rate, to influence inflation and economic developments. A safe and efficient payment mechanism financial stability The Riksbank ensures promotion of a safe and efficient payment mechanism in the country. This will in turn help in maintaining the stability the countrys financial system as a whole. The central bank also issues banknotes and coins as well as provides an electronic payment

system, RIX, which handles large value payments between banks and other actors in a safe and efficient way.

The Riksbank analyses the stability of the financial system on a continuous basis in order to detect, at an early stage, changes and vulnerabilities that could lead to disruptions. The analysis focuses primarily on the major Swedish banking groups, the functioning of the financial markets and the financial infrastructure required for the payments and the financial markets in Sweden to function smoothly. In a crisis situation, the Riksbank may in certain circumstances provide temporary liquidity assistance to banks. The Riksbank's independence The Riksbank is a public authority under the Riksdag. The Riksdag appoints the members of the Riksbank's General Council. The General Council in turn appoints the members of the Riksbank's Executive Board. The General Council also supervises and scrutinises the work of the Executive Board. The Riksdag has given the Riksbank an independent status. This means that the Executive Board of the Riksbank makes the monetary policy decisions without instruction from any other parties. By delegating the task of maintaining inflation at a low and stable level to the Riksbank, the Riksdag has ensured that monetary policy is based on a long-term perspective and that there is a sound basis for the credibility of the inflation target. Relationship with ESCB As Swedens central bank, the Riksbank is part of the ESCB since its inception in 1998. The ESCB comprises the European Central Bank (ECB) and the national central banks of all EU Member States (see Other EU co-operation). The ECB and the national central banks of the seventeen EU countries that have so far adopted the euro are jointly referred to as the Eurosystem. Given Swedens current status as a country with a derogation concerning the adoption of the single currency, the Riksbank is not part of the Eurosystem. Central banks that are members of the ESCB but not of the Eurosystem, retain responsibility for monetary policy and other ESCB-related tasks in their respective national context. The Riksbank governor is a member of the General Council of the ECB, which meets every quarter to exchange information and promote co-operationbetween central banks in the EU, with a general view to permitting entry into the Eurosystem at a later stage in connection with the adoption of the euro. The

General Council inter alia adopts the ECB convergence reports, where the performance in relation to the economic convergence criteria in the Treaty and the compatibility of national legislation with the Treaty and the ESCB statute are being examined for countries with a derogation. Such reports are prepared every two years or at the request of a member state seeking to join the euro area. In recurrent such examinations, it is noted that the krona is not part of the ERM II and that Sweden does not fulfil the criterion on exchange rate stability. Furthermore, there is a need for adjustments to the legal framework for the Riksbank. The membership of the General Council also includes contributing to certain activities of the ECB, prior to decisions on such issues taken by the Governing Council of the ECB. Furthermore, representatives of the Riksbank take part in the ESCB committees whenever they perform duties on behalf of the General Council, as well as in a number of working groups set up by these committees. All in all, the Riksbank participates in around 50 committees and groups within the ESCB. Supervision of Swedish banks The main functions of the financial system are to accept deposits and provide credit, mediate payments and to diversify risks. It is of great importance that the function and reputation of the system is maintained and, therefore, society has found it necessary to create laws that regulate the institutions that constitute the financial system. Among these institutions, the banks play an important role and there are a number of laws and regulations that regulate their activities. Finansinspektionen (the Swedish Financial Supervisory Authority) and The Riksbank (the Swedish central bank) have the main responsibility of monitoring compliance with these laws and regulations, and to maintain financial stability. Finansinspektionen has a direct responsibility to supervise the individual institutions on the financial market. The Riksbank has an overall responsibility to promote a stable function of the financial system. The task of promoting stability in the financial system is shared between the two authorities. The Riksbank The Riksbank is an authority with an independent status under the jurisdiction of the Swedish parliament. The main task of the Riksbank is to maintain price stability. The Riksbank interprets the task of price stability as keeping inflation low and stable. A second important task for the Riksbank is to promote stability in the financial system and particularly in promoting a safe and efficient payment system, and to be ready to handle a possible financial crisis. The payment system includes, among other things, the whole infrastructure for payments and securities transactions. The Riksbank promotes the financial stability by regularly monitoring and analysing risks and threats to the stability of the financial system. In this purpose, the Riksbank, besides for the payment system, also analyses the four major banking groups, the banks borrowers, and the macroeconomic development. The findings of the Riksbank are communicated e.g. through regular publications, articles and speeches.