The hub of the economy: Banks, securities and insurance

Every time we use a credit or debit card to pay at a shop, borrow money to pay for our new flat or take out a pension insurance policy, we make use of the financial system. Whether we choose to consume or to save, we are participants in the financial market.

Why do we need financial markets?

One of the most important tasks of the financial system is to act as an intermediary for payments. The vast giro system run by the banks is part of the payments system and is used to mediate a huge number of payments every day. The payments system can be described as an infrastructure for payments, in much the same way as roads and railways are a network for goods transport. Without an efficient payments system, the economic activities of our society would come to a standstill.

Another important task for the financial system is to channel money from those who want to save to those who need money for investments, i.e. to mediate capital. The banks serve as a go-between, lending money someone else has deposited to third parties in need of funds. A company may borrow in order to build a new factory - a private person in order to build a new house. A company can also raise capital directly by selling shares on the stock exchange.

A third important task performed by the financial markets is risk management. Almost all economic activities involve an element of risk. The financial sector is able to spread and redistribute the risks. The more efficiently the three important functions of mediating payments, mediating capital and spreading risks can be performed, the more the financial sector contributes to the development of the economy.

What role does the Ministry of Finance play?

The task of the Ministry of Finance is to see to it that legislation is in place that makes the financial system efficient and stable, protects you, the consumer, and creates a climate for competition and further development. The Ministry of Finance also follows developments in the financial markets and business sector so as to be able to assess the need for new legislation or amendments to existing laws.

Delicate balancing act

The purpose of the legislation is to create stability in the financial system and ensure that consumer interests are protected. People must be able to trust the system. We must be able to feel confident that the money we deposit in the bank today will be there in a year's time for us to withdraw. At the same time, the legislation needs to be sufficiently flexible to allow product development, new business starts and increased competition in the financial markets.

Important government agencies

The Ministry of Finance is responsible for the National Debt Office, one of the largest actors on the Swedish financial market. The task of this agency is to finance and manage the central government debt. The Office borrows money to cover the budget deficit (if any) and to refinance old loans that fall due for payment. The Ministry of Finance is also responsible for the Financial Supervisory Authority (Finansinspektionen), which supervises financial markets, marketplaces and financial enterprises.

Pensions

The Ministry of Finance is responsible for the National Pension Funds and the Premium Pension Authority. There are six National Pension Funds, which manage pension capital so as to maximise the benefit to the pensions system. As part of the new pensions system, nearly all income earners also choose their own funds from a large number that are affiliated with the premium pension system. The Premium Pension Authority administers their choices.

EU cooperation

Much of the legislation in the financial markets area is Community legislation. The EUs goal is to establish a single market for financial services in the EU. The Ministry of Finance represents Sweden's positions at EU meetings and is involved in formulating Community legislation in the financial markets area.