Eh? I just looked at the list rates of a few of the Swedish banks and all the short term interest (3 month fixed) were below 3% while the 2+ year fixed were 3.2% and up.

Quite far from 4% and if you have decent finances you can get lower than that. Even at 4% it is a far cry from the rates of days of old.

Banks are profitable, sure. But also remember that the credit loses on mortgages in Sweden are practically zero, that contributes greatly to profitability.

Lastly, why would it be a fair system to have to lend directly from the central bank, you would not pay REPO rate as individual borrowers are significantly more risky than huge banks...