Learning from crises

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Introduction

Let me start by thanking our host today, Sparebanken Hedmark, for this opportunity to share with you some of our thoughts on recent developments in the financial markets. I will also devote many of my allotted minutes to talk about lessons from previous financial crises, and their implications for regulation and market behaviour.

The minister of finance, Sigbjørn Johnsen, was first invited to give this talk, but is unable to participate. Sigbjørn was asked in particular to talk about lessons and experiences from the Norwegian banking crisis in the early 1990s. Although I do not have the same first-hand experience from that crisis as Sigbjørn, who was minister of finance back then as well, I will try to shed some light on how the banking crisis affected the impact in Norway of the recent international financial crisis. I will also emphasise the general importance of drawing lessons from previous crises, for future crisis management.

As I am sure all of you are well acquainted with, these are challenging times. The global economy and international financial markets are still impaired from the shock of the financial crisis. Economic growth and financial stability are subject to great uncertainty.

In addition, banks must adapt to a new set of internationally agreed rules and regulations in the next few years. In challenging times it is hard, and sometimes proves impossible, to convince investors of the wisdom of new capital injections. 
For Norwegian savings banks, and smaller banks in general, complying with even more comprehensive and complex EU rules may pose a challenge. EU rules in this area are often written with large, European financial institutions in mind. On the other hand, Norwegian banks, and our savings banks in particular, have some of the highest capital ratios among European banks. The current Norwegian financial markets regulations are also in some ways stricter than the EU minimum standards. This proved beneficial during the international financial crisis, and will surely ease the transition to new and stricter EU standards.

The rest of my talk is organised as follows: First, I will say a few words about the recent international crisis and its impact in Norway and elsewhere. Then I will talk about lessons from previous crises, with special emphasis on the Norwegian banking crisis in the early 1990s, before I offer a perspective on systemic importance in the banking sector. Finally, I will talk about international regulatory reform in the wake of the recent financial crisis.

The international financial crisis

The impact of the international financial crisis on the Norwegian economy has been less severe than in most industrial countries. Banks and other institutions in our financial sector were only mildly affected. Public finances remained sound and unemployment stayed low, much owed to the structure of the Norwegian economy.

Targeted actions from the government mitigated the effects of the crisis. The implementation of extensive liquidity and credit policy actions, as well as expansionary fiscal and monetary policy measures, helped stabilise Norwegian financial markets and the Norwegian economy.

Noregs Bank reduced its key policy rate by 4.5 percentage points from October 2008 to the summer of 2009, to a historical low rate of 1.25 per cent. Since around 90 per cent of all home mortgages in Norway have floating rates, and the home ownership rate is high, the policy rate reduction had a relatively rapid impact on the purchasing power of Norwegian households during the international crisis.

The Norwegian fiscal policy response to the crisis was among the most powerful in the world, in relative terms, and resulted in an effective stimulus to the Norwegian economy. The response was possible due to exceptionally strong public finances, and flexible policy guidelines for the use of Norway’s petroleum revenues.

Among other temporary measures, the government introduced a swap arrangement whereby banks could borrow government securities in exchange for covered bonds. We also established a special fund to provide tier 1 capital to sound Norwegian banks. These measures improved the banks’ access to financing and equity. Perhaps more important, the measures instilled confidence among market participants and customers.

It has been – and is – a priority in Norway to ensure that the whole financial sector is subject to supervision and regulation, and that regulation between different segments of the market is mutually consistent, based on the principle of ‘same risk, same regulation’. In order to avoid regulatory arbitrage, all relevant financial actors and all types of financial instruments need to be subject to appropriate regulation and oversight. This approach to supervision and regulation of financial markets prevented the kind of harmful build-up of risk in unregulated ‘shadow markets’ that has been evident in other countries.

The principle of ‘same risk, same regulation’ is now recognised internationally, and is being pursued in the work of the G20, IMF, Basel Committee and others. I will return to the topic of international regulatory reform in a few minutes.

The economic recovery now seems to be gaining a solid footing in Norway. When the Ministry of Finance presented the Revised National Budget a month ago, it forecasted that the Norwegian economy would grow well above trend in both 2011 and 2012.

General optimism, low unemployment, relatively low interest rates, growing real estate prices and a high level of household saving suggest high growth in private consumption in the years ahead. Petroleum sector investments and mainland business investments are also expected to increase. Unemployment has remained low and currently stands at just above 3 per cent, which is markedly lower than the average for the past 20 years.

The temporary measures implemented to abate the impact of the international financial crisis in Norway are now being phased out. Monetary and fiscal policies are also being ‘normalised’. The key policy rate has gradually been raised to 2.25 per cent in light of positive developments in the Norwegian economy, while fiscal policy is somewhat tightened.

Internationally, the situation is very different. For some countries, the financial crisis has developed into severe domestic economic problems and major budgetary challenges. Many economies are still in need of stimuli and support. While Norwegian policymakers could achieve extensive economic stimuli during the crisis without exhausting fiscal and monetary policy, policymakers in other countries soon met constraints. Interest rates close to zero and strained public finances now limit the potential of traditional monetary and fiscal policy.

A handful of European countries come off as particularly vulnerable. High levels of government debt may bring about new turmoil, and perhaps even another financial and economic crisis.

While it is estimated that the average debt to GDP ratio in the OECD area is set to increase to approximately 100 per cent this year, unemployment ratios remain at alarmingly high levels in many countries.

The IMF recently summarised the situation internationally by saying that ‘downside risks continue to outweigh upside risks’. The IMF points out that high government debt and troubled real estate markets continue to present major concerns in advanced economies, while new risks are building because of rising commodity prices and geopolitical uncertainty, as well as overheating and booming asset markets in emerging market economies.

In the Nordic region, the effects of the international crisis have also in many ways been brutal, but the Nordic countries’ economies have recovered relatively fast. This is at least in part due to sound policies in the years before the crisis, and a solid economic foundation.

The many similarities between the Nordic countries, and the interdependencies between the countries’ economies and financial systems, imply that we should work together to prevent and to minimise the effects of future financial crises.

A few lessons from the international financial crisis

The overwhelming consequences of the international financial crisis have spurred many discussions about what can and must be done to prevent another crisis, and how potential, future crises should be managed.

In Norway, the management of the crisis this time around reflected our experiences from previous crises. I will get back to these experiences in a minute. We knew that we had to act quickly and that it was necessary to implement sufficiently extensive measures right away. Our experiences from using this strategy during the financial crisis are positive.

In the discussions on avoiding new crises, the first step was identifying the root causes of the recent financial crisis. Although there still are – and perhaps always will be – controversies surrounding this issue, it is clear that regulators, financial institutions and others now are ready to move on to step number two: Drawing on the lessons learnt and initiating changes in regulation, supervision and behaviour.

Among the key lessons from this crisis are that international financial institutions were over-leveraged, taking excessive risks and exercising poor liquidity management. Furthermore, weak, inconsistent and sometimes even non-existing regulation in many countries allowed irresponsible behaviour to take place, and dangerous build-up of systemic risk. A striking example of this was the insufficient regulation of the US subprime market, which endangered, and ultimately destabilised, the entire global financial system.

In Europe, many point to the weaknesses of the international regulatory standards. Among those are the Bank of England and the UK Financial Services Authority (FSA), who in a recent report concludes that ‘The central failing behind the global crisis was that of the Basel standards for capital and national liquidity regimes, which proved inadequate’.

From a Norwegian point of view, this crisis also demonstrated that financial markets are indeed international, and that financial stability cannot be secured through domestic policies alone. Problems – and even rumours of problems – in one corner of the global system can easily cause contagion throughout the entire system. That is why banks’ funding should be more robust – and thus less vulnerable to problems in international funding markets – and why financial markets regulation should be sound and consistent across countries and markets.

Three previous Norwegian banking crises

Norway has been hit by financial crises several times in the past, with each crisis sparking changes in the way we perceive the role of financial markets and services in our economy. Keeping the lessons from these previous crises in mind is of equal importance as acting on the more recent lessons we have drawn from the international financial crisis. 

In 1899 the Norwegian real estate and stock markets crashed, after a period of economic expansion internationally and in Norway. Asset prices plunged, defaults and bankruptcies increased, and banks suffered great losses. While several banks failed due to massive losses, the consequences of the banking crisis of 1899 were mitigated by support measures implemented by Noregs Bank. For the first time, Noregs Bank assumed the role of lender of last resort. Although the 1899 crisis did not bring about stricter regulation of Norwegian financial markets, it did induce a significant change in the role of the central bank.

In the years following this crisis, the supervision of financial markets in Norway was extended and formalised. In fact, the establishment in 1900 of a savings banks supervisory authority within the Ministry of Finance, was the first of several supervisory authorities to be established in Norway during a 20 year period after 1900. From then on, supervision of financial markets in Norway developed over many years into today’s Financial Services Authority, Finanstilsynet. When several market specific supervisory authorities were merged into a single authority in the mid-1980s, Norway was among the first countries in the world with such an integrated, universal supervisor. This model allows consistent supervision of the financial sector as a whole, in line with our ‘same risk, same regulation’ policy.

An extensive, systemic crisis unfolded in the Norwegian banking sector in the 1920s. Again, the crisis was preceded by a period of economic expansion internationally and in Norway, and a booming growth in lending from Norwegian banks. When defaults rose and many banks cancelled their payments in the early 1920s, worried depositors claimed their deposits. The ‘bank runs’ caused a serious liquidity crisis, which spiralled into a full-blown banking crisis with far-reaching negative consequences for the Norwegian real economy.

Monetary policy played a special role in the 1920s, as it was carried out to restore the gold standard at the pre-war parity. This implied a contractionary monetary policy to support an appreciation of the Norwegian krone, in the midst of the economic recession of the early 1920s. Restoring the pre-war parity was a widespread goal internationally, on the grounds of stabilising currency exchange rates. In Norway, this monetary policy may have contributed to the banking crisis, and it certainly had negative effects on the real economy.

More than 130 Norwegian banks failed during the banking crisis of the 1920s. The crisis led to large structural changes in the banking sector, and sweeping changes in many other areas. The scope of regulation and supervision was significantly extended. Activities previously not subject to regulation were regulated, and regulatory requirements were tightened. The crisis and the consequent reforms influenced the role and regulation of the Norwegian financial sector for decades to come.

The Norwegian banking crisis of the late 1980s and early 1990s had its roots in credit market liberalisation, from the heavily regulated post-World War II financial system, to the market-based system of the mid-1980s. The relaxation of credit constraints, together with a booming economy and expansionary monetary and fiscal policies, led to a great credit expansion and build-up of considerable imbalances in the early 1980s. Former governor of Noregs Bank, Hermod Skånland, coined the phrase ‘bad banking, bad policy and bad luck’, when he in 1989 discussed the causes of the banking crisis.
The first banking difficulties surfaced in 1987. The crisis peaked in 1991 when almost all of the equity capital of the largest banks was lost.

The Norwegian banking crisis of the 1990s is often seen as a consequence of the difficult transition from one regulatory regime to another. Contrary to the recent financial crisis, the crisis did not spark a debate on the stability of deregulated markets.

Although the crises of 1899, the 1920s and the 1990s in many ways are very different from each other, there are significant similarities. All three crises were preceded by economic booms, and they all coincided with recessions. The booms were characterised by substantial bank and credit expansion, substantial asset price inflation and substantial indebtedness within and outside the financial sector.

The causes of crises are usually complex and often difficult to identify. That said, the crises of 1899, the 1920s and the 1990s had predominantly domestic causes, which arose from typical boom-bust cycles. In contrast, the financial crisis of 2008 was ‘imported’ to Norway through international funding markets.

Each of the booms preceding the three domestic crises enabled – in different ways – banks to rapidly expand their lending, through relaxation of various financial constraints. Moreover, loan quality seem to have deteriorated during the booms. In fact, gradually deteriorating loan quality during booms may be one reason why banking crises seem to reoccur through history.

Interestingly, commercial banks in Norway have generally experienced deeper crises than savings banks. This is in part owed to greater expansion by commercial banks in booms, and in part to differences in risk taking. Commercial banks have typically held more risky business loans than savings banks, compared to holdings of residential mortgages and other less risky household loans. Furthermore, savings banks have not been able to raise equity in the stock market to support rapid growth during booms. As mutually owned, the savings banks could for the most part only increase their equity through retained earnings. Legislative and cultural changes may now have altered this pattern.

Recessions are inherent in market based economies, and phenomena we have to expect every once in a while. Some recessions may trigger banking crises. It is therefore a key priority to ensure that we have a banking system that is robust against recessions, and has ability to absorb substantial losses. 

We must not forget the lessons learned from previous crises. Banks and other financial institutions have a particular responsibility for the soundness of their operations. The authorities are responsible for establishing good regulatory standards and to oversee compliance with the standards. We must always aspire to have an up-to-date regulatory and supervisory regime that effectively contributes to financial stability. That includes vigilant efforts to make improvements based on crisis experiences.
But we should also take very seriously our role as facilitators for an enlightened public discourse on financial markets. By raising awareness of the nature of crises, and the fact that crises occur again and again, we can enable households, businesses, banks and others to better prepare for future crises. The key message is that bad times follow good, and that risk taking and indebtedness must be appropriate to the inherent uncertainty of markets and the economy.

Impact of the Norwegian banking crisis of the 1990s on regulation and behaviour

Since it is the most recent, full-scale financial crisis in Norway – and since it has had a direct impact on today’s financial markets regulation – I want to dwell for a moment on the Norwegian banking crisis of the 1990s.

Among the most important lessons Norwegian regulators drew from the banking crisis is that banks have to build an ample equity base during periods of economic booms, so that they are able to absorb the losses that most likely will occur later. Banks must plan through the economic cycle, and not let themselves be blinded by optimism or beliefs of artificially low credit risks.

Norwegian regulators have also learned that regulatory capital in banks should largely consist of proper equity, and that authorities should be cautious to approve various types of hybrid capital instruments as part of the regulatory capital. Such instruments are less able to absorb losses, and are in many respects more like debt than equity. This lesson is reflected in the Norwegian capital regulations, which requires that Tier 1 capital consists of at least 85 per cent equity. The corresponding EU minimum is 50 per cent. This will be tightened as the EU implements new capital requirement rules in light of the financial crisis.

A few years after the banking crisis, the current Norwegian deposit guarantee scheme was introduced by law in 1996. The guarantee level is among the highest in the world; 2 million kroner per depositor per bank. Deposit guarantees have a long history in Norway. In 1924, membership in a deposit guarantee scheme was made mandatory for all savings banks, which included an unlimited guarantee for the savings banks’ depositors. During and after the banking crisis of the 1980s and 1990s, there was a de facto unlimited deposit guarantee for all banks.

The design of the current Norwegian guarantee scheme is based on our experiences from that crisis, namely that a generous deposit guarantee reduces the risk of bank runs, and thus provides an important contribution to financial stability. The Norwegian government is now working towards the EU to maintain our current guarantee level, rather that forfeiting to the proposed EU/EAA standard coverage of 100 000 euro.
Experience from the Norwegian banking crisis may moreover have contributed to more conservative, and perhaps better, banking in Norwegian banks. Our banks had for instance very little involvement in exotic securities and creative business models prior to the recent financial crisis. The types of exposures that most impaired many banks internationally during the financial crisis merely made a dent in Norwegian banks’ balance sheets.

A very important point to be made when discussing the banking crisis of the 1990s, is how the Norwegian government managed the crisis then and there. When all of the largest banks fell into serious problems in the early 1990s, it became evident that the government somehow had to inject capital into the banks in order to stabilise the banking system. Before there was any capital injection however, the government made sure that the banks’ owners were held fully responsible for the banks’ losses, by writing down the value of the equity to zero. Subsequently, the government injected new equity capital and assumed ownership of the banks in question.

In this way, those responsible for the banks’ business and risk management – the owners – suffered losses before everyone else, while the transfer of risk from private actors to the public purse was accompanied by control and ownership of future profits.
This recipe for crisis management contrasts with many other approaches during various crises. Too often governments have implemented support measures without charging those responsible for the problems properly. This gives rise to the proverbial ‘privatisation of profits and socialisation of costs’, and very bad incentives for good banking. The Norwegian approach to crisis management on the other hand provides healthy incentives for good banking, as banks and their owners can expect that any new losses due to high risk-taking must be borne by themselves.

Perspectives on systemic importance

Financial services are vital for the functioning of any economy. In modern economies, we have come to depend on financial services being available virtually at all times. Since the social costs of problems in the financial sector demonstrably can be very high, market actors seem to assume that the government in many instances will be forced to implement support measures.

The hypothesis of such an ‘implicit government guarantee’ may have gained ground after the international financial crisis, when governments around the world provided their financial sectors with extensive support to avoid further shocks to their economies. The hypothesis is further boosted by the fact that the recent crisis brought along a wave of consolidation, resulting in fewer and larger financial institutions. Systemic importance is closely associated with an institution’s size and complexity.

Any expectation of government intervention is valuable for financial institutions and their owners, because the government is perceived to basically take on a substantial part of their risk, free of charge. It is for example evident in funding markets that larger and more complex financial institutions – those who presumably are the most systemically important – face lower funding costs than other institutions.

The notion of an ‘implicit government guarantee’ give cause for worry. Firstly, moral hazard problems may arise if banks and other financial institutions’ down-side risks are limited while up-side risks are not. If the government can be expected to cover or prevent losses, the institutions are incentivised to take excessive risks. Secondly, implicit guarantees imply subsidies to the most systemically important institutions, and thus market distortions in favour of such institutions. Relatively lower funding costs mean relatively higher earnings and growth.

Moreover, a third aspect of ‘implicit government guarantees’ is the risk forced on governments, and ultimately the taxpayer. It is highly questionable if society in effect is rewarding irresponsible banking and excessive risk-taking by maintaining the perception of ‘implicit government guarantees’.

So, how can we solve these issues? The international policy debate in the wake of the financial crisis points towards two important areas of regulation. On the one hand, lowering the probability of problems in financial institutions will obviously reduce the value and presence of ‘implicit government guarantees’. As I will discuss in a couple of minutes, this can hopefully be achieved through improvements in the international standards for capital and liquidity requirements.

On the other hand, better crisis management tools, enabling orderly resolution of institutions in crisis, could make failure a more credible threat to financial institutions’ stakeholders. The European Commission is now developing a proposal for new EU rules in this area. The proposal is expected shortly, but the Commission has already declared that ‘Authorities must be equipped with tools that enable them to prevent the systemic damage caused by disorderly failure of [financial] institutions, without unnecessarily exposing taxpayer to risk of loss and causing wider economic damage’. Due to the EEA agreement, Norway is obligated to implement EU financial markets rules into Norwegian law.

I have mentioned the Norwegian government’s management of the Norwegian banking crisis of the 1990s, and how the banks’ owners were held fully responsible for the banks’ losses. This type of action has disciplining effects on banks and other market participants, and contributes to curbing the presence of implicit government guarantees.

Another, more recent, case of such disciplining action was the Danish government’s handling of the troubled Amagerbanken, a medium-size Danish bank. Holders of senior unsecured debt suffered significant losses when Amagerbanken failed in February this year, which was perceived as a significant policy change by market participants.

Losses on such a high priority class of debt caused the market to re-evaluate its expectations of Danish institutions’ implicit guarantee from the government. After Amagerbanken, Danish banks’ funding costs has increased, and credit rating agencies have downgraded the banks’ creditworthiness. For example, Moody’s explains its one-notch downgrade of Danske Bank by referring to ‘reduced systemic support’.

Losses on senior unsecured debt is in effect similar to so-called ‘bail-ins’, where debt is converted to equity when capital ratios drop below certain thresholds. Such debt instruments are part of the international policy debate, and might be introduced via new EU rules on crisis management.

Core vs. peripheral systemic importance

When we talk about systemic importance, we usually talk about what I call ‘core systemic importance’. That is, those services and institutions that are vital for the functioning of the economy as a whole. Another form of systemic importance in the financial sector is the role of smaller, local banks in their home markets. We could call this ‘peripheral systemic importance’, or perhaps ‘local systemic importance’.

Of course, this distinction is transferable to a global scale. Some banks are important for the functioning of the global financial system as a whole, some banks’ systemic importance is limited to regions or countries, while others play a crucial role in local markets.

While ‘core systemic importance’ is a characteristic mainly attributed to commercial banks, many savings banks are prominent examples of ‘peripherally systemic important’ financial institutions. They are often the dominant source of financial services in local markets, with business models based on local knowledge, experience and trust. Many savings banks are in a position where other suppliers of financial services cannot easily replace them.

The importance of the savings banks is reflected in our financial markets regulation. Savings banks were among the very first financial institutions to be regulated by Norwegian law, when Stortinget passed the savings banks law in 1824. The reasoning for subjecting savings banks to such regulation was that ordinary people should be able to safely deposit money in banks, so that more people would set aside money for future needs. Even though savings banks now offer a much wider range of services, the 1824 reasoning still resonates well today.

The number of savings banks in Norway has been reduced from roughly 500 in 1970 to 114 today, but savings banks still vastly outnumbers commercial banks. (There are about 30 commercial banks in Norway today.) The diversity and heterogeneity of the savings banks sector contribute to their importance in local markets, and in the Norwegian economy as a whole. The heavy presence of savings banks could also be a stabilising factor in the Norwegian financial system. Past experiences indicate that their business model and behaviour are strengths in challenging times.
Politically, it is therefore a priority to maintain a strong and competitive saving banks sector in Norway.

International regulatory reform in the wake of the recent crisis

The international crisis taught us many lessons on how financial markets and institutions should, and should not, be regulated. From a Norwegian point of view, I think the single most important realisation that can be made from this recent experience, is how countries, economies and financial systems depend on each other.
Norway, a small, open economy trading extensively with countries all over the world, cannot shield itself against crises. The financial sector, which is virtually integrated internationally, is particularly exposed. Making sure our own markets and institutions are well regulated and well supervised is of course still very important, but far from enough.

A market economy can underpin creativity and wealth creation. The recent financial crisis demonstrated however that the inherent stability of deregulated credit markets can easily be overestimated. If the activities do not take place within appropriate rules and regulations, the market players may become too creative – serving their own benefits, not the society’s.

The crisis also revealed that the existing international regulation of financial markets was insufficient. Some areas are not properly covered by regulation or oversight, while regulations in other areas are too lenient. The overarching goal after the crisis should therefore be to close regulatory gaps, and to ensure that the whole financial sector is subject to sufficient regulation and supervision.

This goal is now recognised internationally, and is being pursued in the work of the G20, IMF, Basel Committee and others. The US, which has a special responsibility for improving the regulation and supervision of its financial markets, has taken an important step by adopting the so-called Wall Street Reform and Consumer Protection Act. Although much is yet uncertain about key details and its potential impact, the act clearly acknowledges that markets cannot be left to regulate themselves. For Norway and Europe as a whole, it is particularly important that the EU has taken a leading role internationally, by reshaping and improving its financial markets regulation.

In Norway, we have often utilised our degrees of freedom within the EEA agreement, after a thorough and independent evaluation of what regulation would be best for Norway. We have especially emphasised the importance of rules that promote financial stability and consumer protection. This policy has resulted in national rules that, in some respects, are stricter and more comprehensive than the relevant EU minimum requirements.

Some countries in Europe and elsewhere have regulated their financial markets by simply implementing the bare minimum international standards, in order to attract financial institutions and other business. This type of ‘race to the bottom’ approach to financial markets regulation might be beneficial for the individual country in the short run, but puts financial and economic stability at risk in the long run. Not just in these countries themselves, but in the international system as a whole. That is one reason why we need better minimum regulation requirements at an international level. 
For financial institutions, the key lessons from the recent crisis are that they were over-leveraged, taking excessive risks and exercising poor liquidity management. Regulatory changes now underway in the EU and elsewhere aims to address these lessons by requiring banks and other institutions to hold more capital, and more liquid assets.

The current Basel II standards were intended to contribute to a better match between capital requirements and the actual risks in individual banks. The recent crisis demonstrated however serious weaknesses in the complex legislation and individual risk models that followed the standards. Despite – or perhaps because of – its sophistication, the Basel II system more or less failed when put to the test. The system allowed dubious calculations of capital requirements, which resulted in too low capital ratios in many banks internationally.

The so-called Basel III package of changes to the Basel II framework, seeks to fix many of the revealed weaknesses. Basel III still has a long way to go before legislative implementation in the EU and elsewhere, but preliminary discussions point toward a goal of harmonisation of the Basel III rules in the EU/EAA area. An immediate concern that comes to mind is the rigidity of such regulation.

Harmonisation does in general not allow for adjusting national regulation to national experiences and concerns. Had a fully harmonised regime for instance been in place in the early 1990s, Norway could not have improved its regulation according the lessons from the Norwegian banking crisis.

Norway is well positioned for improvements

In Norway, we are now well positioned to improve on our regulation and supervision of the financial markets in light of the international financial crisis. The Norwegian economy has recovered and our financial institutions are sound.
Most Norwegian banks are already in compliance with the proposed Basel III capital requirements. The proposed Basel III liquidity requirements will probably have a more significant impact for Norwegian financial institutions. Liquidity was a major issue during the crisis, and the new requirements will likely pose a challenge for Norwegian institutions in the next few years as well.

Thank you for listening.