SVERIGES RIKSBANK

SE-103 37 Stockholm

(Brunkebergstorg 11)

Tel +46 8 787 00 00

Fax +46 8 21 05 31

registratorn@riksbank.se

www.riksbank.se

DNR 2011-618 STA

2011-09-29

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From consolidation to development

Strategic plan for the next 3–5 years

Introduction and summary ................................................................................................. 2

The Riksbank’s tasks and overall objectives ........................................................................ 3

Our management model ..................................................................................................... 5

Our vision – among the best ............................................................................................... 6

Looking back – the transformation of the Riksbank ........................................................... 7

The world around us – trends and challenges .................................................................... 8

Among the best in the years ahead .................................................................................... 9

Strategic risks .................................................................................................................... 13

Strategic priorities: ............................................................................................................ 15

Resources .......................................................................................................................... 16

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Introduction and summary

This document is the result of a review conducted in 2011 in which divisions and departments discussed the direction the Riksbank ought to take, among other considerations on the basis of the lessons we can learn from the financial crisis. The strategic plan is intended to be a living document that we discuss and adjust ahead of operational planning every year. Its nature as a living document is particularly relevant just now, when roles and tools for central banks in the future are being discussed intensively, both nationally and internationally.

The document is a review of our task, our vision, trends that affect us, the level of ambition for our various areas and strategic risks to which we need to decide on an approach. This has resulted in ten strategic priorities to be made concrete in prioritised action plans in the approaching operational planning process.

New strategic plan – from consolidation to development

The Riksbank has been engaged in a period of consolidation based on experiences and lessons learned going back to the crisis of the 1990s. The journey we have been on since the 1990s has been one of building up know-how and expertise for our most important tasks. To fund investments in competence and communication for our main tasks, we have reviewed and rationalised other activities.

This consolidation is now in a concluding phase while, at the same time, a new phase of development has been initiated in the light of our newly-gained experiences. After recent years’ financial unease, the Riksbank is facing new challenges in both monetary policy and our work on financial stability.

Just as after the previous crisis, we (and others) are now evaluating our role and our tools using the lessons we have learned. While waiting for our formal mandate to be clarified, we will develop our operations in line with our current assignment and in consideration of how this assignment could be imagined to change in the future. We will also continue to develop the material on which we base monetary policy decisions in the direction decided upon considering recent years’ experiences.

In addition, we need to deepen our knowledge of the links between our main tasks and find better ways of exchanging ideas between our analysis areas. We will develop the monitoring and analysis of risks in macroeconomic development that threaten financial stability and financial factors that threaten price stability. To support this development, we will need to invest more research resources in the area of financial stability. This will probably also require access to new statistics.

In our operations, the major projects that have been underway, such as Broby and the new coin and banknote series, are to be concluded. At the same time, in the years ahead, we will focus on developing preparedness for the operational management of financial crises by more proactively developing the tools we may need in a crisis situation.

Our bank-wide functions are to support this development by proactively working with a solid understanding of the needs of our core activities.

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The Riksbank’s tasks and overall objectives Our tasks are specified by the Sveriges Riksbank Act. This stipulates that we have two main tasks: taking responsibility for monetary policy and promoting a safe and efficient payment system.

Responsibility for monetary policy

According to the Sveriges Riksbank Act, the objective of monetary policy is to maintain price stability. With this as a starting point, we have specified a target for inflation, according to which the annual change in the consumer price index (CPI) is to be 2 per cent. The Riksbank’s main tool for influencing inflation is the repo rate.

At the same time as monetary policy is aimed at attaining the inflation target, it is also to support the objectives of general economic policy for the purpose of attaining sustainable growth and a high level of employment. This means that we conduct what is known as flexible inflation targeting.

To summarise, this task means that the Riksbank maintains price stability, among other means, by:

carrying out ongoing analyses and supervision of the development of the economy in Sweden and other countries, including the development of the financial system,

forecasting economic developments as a basis for monetary policy decisions, and

regularly monitoring and analysing the macroeconomic effects of ongoing changes in the global economy and financial system

Promoting a safe and efficient payment system

The second main task means that we are to act to promote stability in the financial system. We have chosen to define financial stability as meaning that the financial system can maintain its basic functions and also has resilience to disruptions that threaten these functions. The financial system consists of banks and other companies (for instance insurance companies and mortgage institutions), marketplaces and infrastructures. The functions provided by the financial system are the mediation of payments, the conversion of savings into funding and the management of financial risks. The financial system is also governed by laws and regulations that influence its participants. The task of promoting a safe and efficient payment system also includes operational tasks such as providing means of payment and payment systems. To summarise, this task means that the Riksbank:

issues banknotes and coins,

provides a central payment system – which banks and other agents can use to make payments,

gathers, compiles and distributes information on the financial system,

regularly analyses and supervises developments in the financial system and the economy as a whole,

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works to prevent threats to financial stability by analysing, informing of, and warning against risks that are building up,

influences the financial regulatory framework so that it contributes to stability and efficiency,

tries to reduce the effects of a financial crisis if this should arise.

The Riksbank also has responsibility for the assets in the gold and foreign exchange reserves. The assets are to be managed so that we are well prepared to fulfil our main tasks and safeguard the independent position granted us by the Riksdag (the Swedish parliament). In addition, we shall strive for the best risk-adjusted return possible.

The Riksbank is also responsible for certain public statistics, although the greatest part of the statistics production has been outsourced to Statistics Sweden. In addition, we gather statistics for our own monitoring and analysis work.

Illustration of the Riksbank’s overall objectives and tasks:

Independent status

The Riksbank is an authority under the Riksdag. The Riksdag appoints the members of the General Council of the Riksbank, which, in turn, appoints the six members of the Riksbank’s Executive Board. The Riksdag has given the Riksbank independent status, which means that the Executive Board of the Riksbank takes monetary policy decisions and may not take or seek instructions from any other party. 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 basis for the credibility of the inflation target.

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Our management model The Riksbank’s objectives, tasks and organisation are stipulated by the Sveriges Riksbank Act and by the Riksbank’s Rules of Procedure and Instructions. The Riksbank’s work is further governed by a long-term vision, a strategic plan for how this vision can be attained, and an annual operational plan and budget. A risk perspective is included as a part of both strategic planning and the ongoing planning and follow-up work.

We divide our objectives into different target areas to more easily steer and evaluate our operations, but, at the same time, we should not ignore their close links to each other. Financial stability is an important precondition for price stability, while price stability is of great significance for the stability of the financial system. The repo rate affects interest rates in Sweden and financial stability. In practice, we implement monetary policy with the aid of the payment system RIX. The most important task of asset management is to ensure that we are well prepared to carry out our main tasks and so on.

In our annual operational plan, we review each target area and specify objectives (with indicators for the assessment of these objectives), risks, prioritised action plans and resources. The processes for the planning and follow-up of objectives, risks, action plans and resources are coordinated by the Controller Function and Risk Division of the General Secretariat, on the orders of the Head of the General Secretariat. In the processes for the follow-up of budget and costs, the Controller Function works together with the Accounting Division of the Administration Department.

Responsibility for the governance and control of operations – their efficiency, results and risk management – are decentralised to the Heads of Department, who, in turn, report to the Executive Board. The Heads of Department coordinate governance in the Management Group, of which the Head of the General Secretariat is Chairman.

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Our vision – among the best The Riksbank’s vision was determined in 2006, a level of ambition that still applies. This vision is to be among the best with regard to quality and efficiency in order to maintain a high level of confidence in the Riksbank.

This means that our tasks are to be fulfilled to a high standard and for a reasonable cost. Consequently, we shall regularly test which level of quality and use of resources is best in the society’s perspective.

Our ambition to be among the best will also create the right conditions for maintaining our peers’ respect and achieving an impact with our analyses, both nationally and internationally.

”Among the best” is a deliberately imprecise goal. We do not say “among the best central banks” because we wish to judge the activities of our different functions against the best practice of organisations relevant to the activities in question. This may frequently be central

banks, but, for certain tasks, we have more to learn from other authorities, academic institutions or private companies. Each operation is to specify, in concrete terms, what the vision means for that area’s operational objectives. The level of ambition is to be cleared with the Executive Board, which decides on operational objectives in the annual operational plan.

Success factors in the realisation of the vision

Qualities that need to characterise our working methods if we are to realise our vision:

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Looking back – the transformation of the Riksbank Experiences from the crisis of the 1990s led us to re-evaluate our overall framework. Our conclusion was that we needed to move on from being a traditional central bank with the emphasis on operational functions to instead focus on developing inflation targeting and contributing to financial stability in a better and clearer manner.

This meant that, by streamlining our operational activities, we could create more resources for our analytical areas. This process of rationalisation of other activities to fund the development of the framework, competence, analysis and communication of our main tasks of monetary policy and financial stability is one that has continued until the present day.

Our explicit strategy has been to review all functions to assess whether these activities should be conducted by the Riksbank itself or whether it would be more appropriate for another party to supply the service in question. The most recent example is IT operations and support, for which procurement is now being prepared.

The period of transformation and consolidation of the Riksbank in the light of earlier lessons is now in a concluding phase, at the same time as a new phase of development has been initiated on the basis of our newly-gained experiences. In the same way as after the crisis of the 1990s, we (and others) are now assessing our role and our tools on the basis of experiences gained and lessons learned from recent years’ financial unease.

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The world around us – trends and challenges Just as after the crisis of the 1990s, we are now in a period of transition in the view of the role and tools of central banks, which naturally will characterise developments in our policy areas as we move forward. After recent years’ financial unease, the Riksbank is facing new challenges in both monetary policy and in our work on financial stability.

An intensive discussion is underway, both nationally and internationally, regarding which lessons should be learned. It is still too early to say which frameworks will be established as international best practice, and institutional structures will develop differently in different countries.

In Sweden, Goodhart and Rochet have assessed our work on behalf of the Riksdag Committee on Finance, and have submitted a number of concrete recommendations that we will consider in the period ahead. At the same time, the government has commissioned an investigation of the structure for the supervision and regulation of the financial markets, which authorities should do what, and how they should cooperate. Following this, the Riksdag will consider any proposed legislation.

It will take some time until we have a new Sveriges Riksbank Act with any changes to and clarifications of our mandate. While waiting for this, we will take every step to make the best possible contribution to price stability and financial stability within the framework of our current assignment and, on the basis of robust conclusions, prepare ourselves for the changes we deem necessary.

Developments in recent years have led us to assess the interaction of monetary policy and financial stability. It remains unclear how this will be handled – but, at any rate, it seems clear that we will not have the same distinct separation between our main tasks in the future.

The trends and challenges we discussed more specifically while producing our new strategic plan and which will affect how we fulfil our assignment are, among other things, the effects of increased globalisation, the continued increasing complexity of the financial sector, the increased harmonisation of regulations and, not least, a world economy in a state of transition. We have also discussed the concrete effects of new and developed payment systems, both for wholesalers and consumers.

Another international discussion has focused on trends affecting our way of working, such as the need for increased international exchanges, increased professional mobility, new channels for target group-specific communications, a new generation of employees with other demands and expectations regarding work tasks and place of work, and so on.

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Among the best in the years ahead

POLICY AREAS, monetary policy and financial stability

It is a challenge for a small central bank in a small country to be at the cutting edge of frameworks, analysis and communications – particularly now that the view of the central bank’s roles and tools is being reassessed. If we are to continue to be “among the best”, there is much to learn from our own and others’ experiences of the financial unease. We will learn from the best and, with strengthened analytical work, we will focus our own efforts on the areas in which we can create the most added value.

Our knowledge and the links between our main tasks need to be strengthened. We will develop the monitoring and analysis of risks in macroeconomic development that threaten financial stability and financial factors that threaten price stability. Our two policy areas will thus need to deepen their exchanges in the years ahead. This development will require drive and energy, at the same time as we must not forget that changes in our actions must always be based on robust insights.

In an increasingly complicated environment, it is important that we deepen our analysis at the same time as we strive to increase clarity over what lies behind our stances. We will launch a clearer management model to secure policy support for research and increase research resources to the area of financial stability and to the interface between our main tasks.

Experiences from the crisis have led to a marked increase in international exchanges. The Riksbank now has extensive opportunities to learn from and influence the international discussion on future regulation, for example in the Basel Committee and the European Systemic Risk Board. This will require a significant input of resources and close cooperation with Finansinspektionen. We will also actively contribute towards developing Nordic-Baltic cooperation on systemic risks.

We hope to receive a clearer mandate for our financial stability work in the future, both as regards possibilities for preventing crises and handling any crises that may arise despite these efforts. In the meantime, we can – and will – act with greater clarity and in a more proactive manner on the basis of our current assignments and participate in discussions of which institutional structure Sweden will need in the future. One concrete example is the Systemic Risk Board that was set up in the autumn of 2011.

Communication is an important tool, both for anchoring monetary policy and in our work on financial stability. Our policy tasks require the support and confidence of our target groups. Challenges in communicating our positions openly and clearly are increasing in tandem with the increased complexity of our areas.

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OPERATIONAL FUNCTIONS, market operations, payment systems, cash, asset management and statistics

The Riksbank has important operational tasks that support and define our overall objectives. For example, providing cash and a payment system, as well as administering the gold and foreign exchange reserve, are core activities for a central bank and the country’s citizens should be able to expect us to perform these tasks in a secure and efficient manner.

One of our goals will therefore be that the Riksbank is to be a reference bank in our operational tasks. In our work with the payment system and cash, we wish to be at the cutting edge by conducting modern, cost-effective and stable operations in comparison with other central banks. When it comes to our gold and foreign currency reserve, we shall be a leading country in terms of the framework, analysis and assessment of their management. We handled the most recent financial crisis with success, even though we were not prepared for all of the unconventional measures that needed to be taken. In the years ahead, we shall improve our crisis preparedness and flexibility by proactively implementing functions that we feel may be needed if new disruptions impact the financial system. At the same time, an overall analysis will be made of the effect of the operative measures on the balance sheet.

In cash management, we are working with two major projects to be concluded in the next few years, both the new office at Broby and the new banknote and coin series.

In the area of statistics, we are raising our ambitions, partly to catch up with international standards for the official financial statistics we are responsible for (and which are produced by Statistics Sweden), but above all in terms of improving our own analysis. This is a consequence of our identification of new risks following the financial crisis and the increasing complexity of the financial system. For example, we need to deepen our knowledge of corporate and household indebtedness.

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THE RIKSBANK AS AN INSTITUTION, bank-wide functions

Our bank-wide functions are to support our development in accordance with the success factors we specified in our vision (see page 6). Just like the bank’s core activities, support and coordination have been through a consolidation phase in which we assessed which tasks we should carry out ourselves and which level of support would be most appropriate. The final stage in this transformation is the decision to carry out procurement for IT operations and support.

The focus now lies instead on developing more proactive support and coordination functions to allow us to better adjust support to present and future needs. For example, a clearer and more active role in financial stability work will require us to recruit the right competence, to design our communications appropriately with channels that reach our target groups in the right way, and to ensure that our internal processes function efficiently. To best support our main tasks, we thus need support and coordination functions with a great understanding of the needs of our core activities.

Good communications will be decisive to firmly establish our analysis and build confidence. Clear and open communication, will make it possible for our principals and

other important target groups to follow, understand and evaluate us. What we will need in the years ahead is not more communication, but clearer communication. Quality must come before quantity.

Competition on the labour market is stiffening at the same time as a new generation of workers, with other demands and expectations, is leaving

university. We need to have an active discussion of how to attract and retain the competence profile we need today and in the longer term. Furthermore, retaining and developing competent staff requires us to have competent managers who are prepared to continually develop their leadership skills.

Our complex operations and the fact that we live in a changing world, place great demands on both high competence and adaptability. Meeting these challenges requires a constant focus on competence development. Expanded international exchanges will allow us to benefit from other countries’ experiences. We will also continue to offer postgraduate training and courses at Swedish and foreign universities.

Since 2006, the Riksbank has conducted five employee surveys. The results show that we have committed staff and a good working climate. It is important to keep focusing on making the Riksbank an attractive workplace by continuing with this development work.

Within the area of IT, regardless of the organisational form, we shall ensure that we have reliable, modern, mobile and efficient IT support with as few internally-developed systems as possible. In the event of the outsourcing of IT operations and support, the future management organisation will have a large amount of responsibility as coordinator between users and a large number of external suppliers to enable effective solutions and handle a continuously increasing change requirement.

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We will continue to clarify our governance and our processes so that we can work as efficiently as possible and our work can be reliably assessed. Our internal control and governance shall be appropriate and efficient and shall clearly fulfil the demands currently being placed on us by the Sveriges Riksbank Act.

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Strategic risks

In our work on the strategic plan, we have identified strategic risks that we may need to take a stance on in various ways over the years to come.

Policy areas One obvious difficulty in determining the strategic direction is the (previously described)

uncertainty surrounding which mandate we will have in the future in the area of

financial stability. We have also previously commented on the increased complexity of

the financial sector. Examples of other risks we need to take a stance on are:

A world economy in an unpredictable state of change, placing high demands on our foreign analysis

Various challenges in adapting from policy analysis to the possible exercise of public authority (other demands on our processes, our competence profile and our communications) if our assignment should be changed.

New regulations leading to risks moving from the agents we monitor to other agents – making our framework too narrow

Possibly increasingly becoming the host country for financial agents, rather than the home country.

Operational functions We are increasingly dependent on external operators, partly because we are continuing

to strive for standard solutions and partly because we are procuring IT operations and

support. In addition, our business system for capital management and payment system

must be renegotiated within five years. Examples of other risks discussed in the

operational area are:

Uncertainty surrounding the timetable, resource input and result of the current

project on a new European system for the settlement of securities, Target 2

Securities (T2S)

Shortcomings in crisis preparedness due to a lack of functionality in the business systems

Uncertainty of our ability to maintain the present organisation for the production of statistics

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The institution, bank-wide functions In addition to risks related directly to our core activities, there are risks that apply to the

whole bank and which are therefore managed by bank-wide functions. Examples of risks

discussed are the risk that we will be unable to attract and retain the competence we

need in the years ahead, the risk of tunnel vision when we need increased collaboration,

the risk that we, as an institution, will not be prepared (in terms of competence, working

processes and communication) for a more active and clear role, and the risk that

preparations for and the implementation of IT outsourcing will impact our operations to

a greater extent than predicted. Some of the bank-wide risks discussed are of a more

tactical nature and will need to be managed in the near future as a part of the ordinary

control of activities.

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Strategic priorities: On the basis of our discussion of international trends and tendencies, the level of our ambition and the strategic risks we have identified, we would like to prioritise certain areas in the years ahead. In the approaching operational planning, the following strategic priorities will be firmly specified in prioritised action plans with clear, timetabled deliveries:

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1. Develop our role and capacity in financial stability work, using lessons from the crisis as a basis Deepen our analysis and become clearer and more active in our supervision and management of systemic risks and other matters

2. Examine and adjust the monetary policy reasoning With the present direction as a basis, develop and clarify the decision-making material (such as the principles and structure of the interest rate path) and improve the management of the monetary policy framework

3. Increase the integration of monetary policy/financial stability In models and preparatory processes: increased knowledge of and cooperation in the impact of financial factors on price stability and the impact of macro development on financial stability

4. Broaden and utilise our international platforms Actively develop our network for the exchange of international experiences and make use of the Governor’s international platform

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5. Increase operational flexibility Continued development of strategy and evaluation of asset management, but also, from a more technical perspective, ensure that important tools for future crisis management are in place. Furthermore, an overall analysis will be made of the effect of the operative measures on the balance sheet.

6. Conclude projects in cash management Ongoing projects for the new banknote and coin series and the new office for cash management are to be concluded

7. Develop internal and public statistics Official statistics are to maintain a good European standard. Satisfy the new requirements of our own analyses

8. Implement a new structure for IT operations and support Using the results of the procurement as a basis, establish a customer function to ensure efficient and secure IT operations.

9. More standardised IT solutions Reduce the number of internally-developed systems

10. Clearer and more efficient processes Continue to develop internal control, clarify our ongoing core processes and develop the governance of our change process

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Resources

In recent years, the Executive Board’s resource framework has remained nominally unchanged, which has meant that the framework has decreased in real terms. During the Riksbank’s present consolidation phase, it has been possible to fund the building up of our main tasks of monetary policy and financial stability through cutbacks and restructuring our other operations.

We are now on the threshold of a development phase in which we need to further develop our analysis of both our main tasks and to play a more active role in financial stability work, both nationally and internationally. We can see that our analytical work has an increased need of statistics and, furthermore, we would like to increase our crisis preparedness by adjusting systems and competence to be well prepared when we need to act. These will be resource-heavy investments and we deem that it will be difficult to continue to fund this development by the rationalisation of other activities alone.

Due to decisions already taken, we are also facing changeover and development costs in cash management and statistical operations. Finally, at present, it is difficult to forecast the cost of maintaining current operations with any certainty, as the effects of the ongoing procurement of IT operations is a major doubtful cost item.

It is thus reasonable to deviate for a period from the nominally unchanged resource framework regime that has been in force since the budget for 2007 was implemented. This does not mean that we will ease cost control – on the contrary, it means it will be even more important to ensure that our limited resources are used where they are needed most.