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Demokratiskolan
The Financial system card from MethodKit for Society and Politics
Card 24 of 128 · MethodKit for Society & Politics
  • AreaEconomy & work
  • Centre of gravityCentral government
  • Points of influence2 on the journey
  • Decisive electionThe general election
Economy & work

Financial system

Monetary system, banks & control functions

The money in your account, the interest on your loan and the card payment at the till rest on a system of banks, laws and supervisory agencies. The Riksbank (the central bank) steers the interest rate, Finansinspektionen (the Swedish Financial Supervisory Authority) watches over the banks, and almost none of this is decided in your municipality (kommun).

Where does the power lie?1

  • State · central bank, laws & oversight · approx 70 %
  • EU · banking rules & crisis framework · approx 30 %

The power lies with the central government and the EU. The Riksdag (Sweden's parliament) you elect appoints the General Council of the Riksbank and passes the laws that govern the banks.

How it works: the breakdown

The municipalityOutside the system
The regionOutside the system
Central governmentThe interest rate & the oversight · centre of gravity
Who decides?
No formal role. The municipality does not govern banks or currency.
No formal role.
The Riksbank, independent under the Riksdag, plus Finansinspektionen (the Swedish Financial Supervisory Authority), the Riksdag and the Government.
What do they decide?
No formal role, but the municipality itself borrows money for investments and is affected by the interest rate level.
No formal role, but the regions' loans and pension commitments are affected by the interest rate too.
The policy rate, notes and coins, banks' licences, amortisation requirements and the deposit guarantee.
Where are decisions made?
Not applicable. The decisions are made by the central government and the EU.
Not applicable.
The Riksbank's executive board decides the rate, Finansinspektionen writes regulations, the Riksdag the laws.
Who pays?
No part of the bill, but the municipality's interest costs follow the policy rate.
No part of the bill.
The central government budget and fees from the banks. The deposit guarantee protects your savings if the bank fails.
Fastest way in?
Municipal election The municipal election does not affect the financial system.
Regional election The regional election does not affect the financial system.
General election The Riksdag appoints the General Council of the Riksbank. Complain about your bank, switch banks, respond to referrals (remiss).
EUThe EU sets capital requirements and crisis management rules for the banks, and the European Central Bank affects the interest rate level across all of Europe. Influence it in the European Parliament election.

Read the table by column to understand one level, or by row to compare the levels. The green level is the area's centre of gravity.

How it works: follow the decision

The case An interest rate rise reaches your wallet
  1. EU

    Rules and the wider world set the frame

    International capital requirements become EU rules that govern how much buffer the banks must hold. Inflation and interest rates move across borders at the same time, no Swedish interest rate is set in a vacuum.

  2. State

    The Riksdag gives the Riksbank its mandate

    The Sveriges Riksbank Act gives the Riksbank the goal of keeping prices stable and protects it from political control in individual interest rate decisions. The Riksdag appoints the General Council that oversees the work.

    Point of influence

    You cannot vote out the executive board, but the general election decides who appoints and reviews it.

  3. State

    The executive board raises the policy rate

    When inflation rises above the target of 2 percent, the Riksbank's executive board can raise the policy rate. The decision is justified openly and the minutes are published.

  4. State

    The banks follow, Finansinspektionen watches

    Mortgage rates and savings rates are adjusted within days. Finansinspektionen monitors that the banks keep their buffers and treat customers fairly.

    Point of influence

    Unhappy with the bank? Complain in writing and then have the matter examined for free at ARN. Switching banks is also power.

  5. Your everyday life

    The mortgage costs more, the savings give more

    The monthly cost of the loan rises and the savings account finally gives interest. The decisions were made far from your kitchen table, but the chain to it is public at every step.

The journey looks the same in reverse: what has been built came the same way, through the same decisions. Whoever knows where the decisions are made also knows where they can be changed.

Questions to discuss

  1. Should politicians steer the interest rate more directly, or is it good that it sits outside the election campaign?

  2. Who wins and who loses when the interest rate rises, and is that fair?

  3. What would happen in your everyday life if cash disappeared completely?

  4. How much do you know about what your bank does with your money, and does it matter to you?

  5. The deposit guarantee means the central government takes the risk when banks fail. What do you think of that arrangement?

Glossary

Styrränta
The interest rate the Riksbank sets, which steers what it costs the banks, and ultimately you, to borrow.
Inflationsmål
The Riksbank's goal that prices should rise by roughly 2 percent per year.
Insättningsgaranti
State protection that replaces your savings up to a fixed amount if the bank goes under.
Amorteringskrav
Finansinspektionen's rules on how much of the mortgage you must pay off each year.
Riksbanksfullmäktige
The Riksdag's elected body that appoints the Riksbank's executive board and reviews its work.

Go further

Footnotes

1) This is an estimate of how decision-making power over the issue is split between the municipality, the region, central government and the EU, based on how responsibility is divided in legislation. A teaching guide, not an exact measurement.