NOU 2000: 9

Konkurranseflater i finansnæringen

Til innholdsfortegnelse

8 The Norwegian financial industry's main competitive advantages and disadvantages: Summary of the Committee's evaluations

8.1 Introduction

According to its mandate, the Committee is to assess the Norwegian financial industry's main competitive advantages and disadvantages compared with relevant foreign operators, in the light of the trends and causal relationships identified in the study. In this chapter the Committee summarises its evaluation of these factors. Particular reference is made in this context to the statistical documentation and discussion in Chapter 4, while the evaluations are generally based on the entire range of information made available to the Committee during its study. Reference is also made to the viewpoints and assessments the Committee has brought to bear on various points earlier in the study.

An evaluation of the Norwegian financial industry's main competitive advantages and disadvantages at a time of increasing international competition must to some extent be carried out on a discretionary basis. The Committee would also like to underline the importance of basing such an evaluation on an overall view without emphasising too strongly certain individual factors that can have a positive or negative effect on the financial industry's international competitiveness. The evaluation undertaken below of such individual factors must be viewed in this light.

8.2 Background for the evaluation

An assessment of advantages and disadvantages must be viewed in the light of the main challenges facing the Norwegian financial industry in the years to come. In this connection the Committee would particularly emphasise the following:

  • The Norwegian financial industry will face increased international competition, placing demands on competitiveness, market adaptation and changing competitive strategies for Norwegian financial institutions.

  • The structure and functioning of financial markets are changing, and thereby also the functions and roles of the various types of financial institutions and market participants. Among other things, cross-border financial operations will increase and the globalisation of markets will be reflected in the portfolio composition of financial undertakings. Competition from non-financial participants may increase, creating new competitive spheres in relation to the financial industry. In addition, securities markets are becoming steadily more important in channelling capital to major borrowers, not least in the euro area.

  • Technological advances, particularly in information technology, will change competitive conditions on both the supply and demand side. For web-based operations, as for some payment services and securities trading, these changes will expose each country's financial infrastructure to international competition. The Internet will create new marketplaces and new forms of trading in financial services, and change the role of intermediaries in the market.

  • Globalisation and developments in information and communications technology will create new opportunities for those demanding financial services, while at the same time placing increased demand on information access and transparency so that customers can make rational choices. A general decline in customer loyalty is expected, partly as a result of the new electronic media and the choices they offer customers.

  • Developments will place new demands on skills and the organisation of financial institutions. Requirements concerning employee skills will increase and companies must be able to adapt their organisations quickly and efficiently to new demands and responsibilities.

  • Legislation, regulations and the regulatory regime must be developed and adapted in order to provide an appropriate framework for the functioning of financial markets in the short and long term. Globalisation of the markets will place greater demands on the harmonisation of regulations and regulatory and supervisory practices across countries. This is particularly true of the European Economic Area (EEA).

The Committee has distinguished between three main types of causal relationships and determining factors in its analysis of competitive spheres and the competitiveness of the Norwegian financial industry:

  1. Effects of steps taken by the financial industry and market participants with respect to market adaptation and strategic behaviour in a situation of stronger international competition and market integration

  2. Effects of financial sector regulations and regulatory regime on competitiveness and market adaptation, with emphasis on special Norwegian regulations and arrangements

  3. Effects of changes in technological and market-related operating parameters and conditions to which financial market participants must adapt.

In discussing the international competitiveness of the Norwegian financial sector, the Committee has found it appropriate to divide this into three levels:

  1. Norwegian financial institutions' ability to maintain their market position in the home market when faced with foreign competition

  2. Norwegian financial institutions' ability to serve Norwegian clients abroad in markets and products regarded as strategically important - following Norwegian clients abroad

  3. Norwegian financial institutions' ability to compete for foreign clients in an international competitive arena - serving foreign clients in foreign markets.

The Committee's assessments basically relate to the first level and partly the second, since it is these two that have so far been the most relevant with respect to the competitiveness of the Norwegian financial sector. As for the third level, special market segments and product areas offer Norwegian financial institutions the best opportunity for exploiting their special competitive advantages.

The general objectives used by the Committee to gauge the Norwegian financial sector's main advantages and disadvantages with respect to international competitiveness are:

  • Smoothly functioning financial markets for the efficient use of resources shall be facilitated and Norwegian financial market participants shall make a contribution to effective competition in these markets

  • Competitive and competition-promoting operating conditions shall be created for Norwegian financial institutions and financial operators, thereby ensuring competition on equal terms

  • Market transparency and access to information shall be facilitated to ensure customer choice with respect to financial services.

These objectives primarily reflect the authorities' responsibilities and required efforts with respect to facilitating competitiveness and the efficient use of resources in the financial sector and promoting the international competitiveness of the Norwegian financial sector within the limits otherwise set by international regulations and obligations. However, they also reflect the demands that must be made of financial market participants and the financial sector itself, in order to ensure the achievement of these objectives.

8.3 Competitive advantages and disadvantages of the Norwegian financial sector

As mentioned, the Committee undertook a statistical documentation and analysis on the basis of existing data on factors of significance to the international competitiveness of the Norwegian financial sector, cf. Chapter 4. To shed light on factors concerning the sector's competitiveness, the Committee also initiated a survey of a sample of non-financial Norwegian companies concerning the criteria they emphasise in selecting Norwegian or foreign providers of financial services. This survey was conducted by the Foundation for Research in Economics and Business Administration (SNF) and is reviewed in more detail in section 4.6, cf. section 8.3.5.

In the opinion of the Committee, the statistical analysis does not provide a basis for making definite and precise conclusions about the international competitiveness of the Norwegian financial industry. This is due partly to statistical deficiencies arising from incomplete or non-existent data, and partly because the statistics do not include factors of significance in evaluating the issue of competitiveness. For example, the fact that there has been relatively little foreign activity and competition in Norwegian life insurance is largely due to the physical presence requirement, stipulated under the tax laws of Norway and most EEA countries, in order to be able to offer schemes providing tax relief. Similar factors should be considered in evaluating the statistical basis and analyses of other areas. The Committee has emphasised evaluating the statistical data in the light of such factors and, as mentioned in the introduction, otherwise applies an overall view as a basis for its evaluation.

On this basis, the Committee would particularly emphasise the following factors as competitive advantages or disadvantages for the Norwegian financial sector:

8.3.1 Market structure and competitive conditions

The Norwegian financial market is small and its size places certain limitations on the opportunities for active market adaptation in the wake of changing international competitive conditions. In areas where potential economies of scale or scope exist, the size of the market can make it difficult to fully realise these advantages through adjustments in the national market. Size factors can also place limitations on Norwegian financial institutions' possibilities for serving major professional Norwegian clients in the face of increasing international competition and market integration.

Major structural adjustments have taken place in the Norwegian financial sector in recent years through mergers, acquisitions, alliances and various forms of structural cooperation between market participants. The overall effect of this has been to promote competition and efficiency. It is possible that the authorities and the industry itself could have chosen a more aggressive strategy to create strong Norwegian entities and realise the potential for higher efficiency that can be achieved through structural measures in the industry. Such measures can help to ensure a sufficiently broad and deep range of financial services for the business sector and consumers. Structural adaptation in the financial industry also seems to have come further in a number of other countries with which the Norwegian financial sector would potentially be competing as international competition increases. There may be many reasons why structural adjustment in the Norwegian financial industry is taking longer, including the regulatory regime and practices, which will be evaluated later. Moreover, state ownership may have created structural adjustment problems. One consequence of somewhat slower structural adjustments may be that Norwegian financial institutions have become more vulnerable in the international merger and acquisition process now taking place than if other strategies had been chosen or the Norwegian regulatory regime had been different. The Committee would underline, however, that the Norwegian financial industry is responsible for developing its own market and competitive strategies vis-à-vis national and international competition.

In the Committee's opinion, the overall competitiveness of Norwegian financial markets has become significantly stronger in recent years, despite the structural adjustment factors pointed out above. The fact that Norwegian financial market participants have adapted to effective competition, and gained experience by operating in a competitive arena in the domestic market, is in itself a good basis for participating in an environment of increased international competition resulting from market integration and the globalisation of financial markets.

In some areas, the competition from foreign participants seems to be somewhat more limited. This applies primarily to life insurance markets, in which the establishment of foreign companies in Norway and cross-border operations has been of modest scope to date. Conditions may, however, change in the future. For insurance markets, it may be particularly difficult to evaluate the competition from foreign sectors and the intensity of the competition without considering regulatory and other factors applicable to the insurance industry, cf. for example, the tax rules benefiting domestic life insurance policyholders. See also section 8.3.4.

The Norwegian securities market is small and not as well developed as in other European countries. Parts of the Norwegian equity market seem to have too little liquidity to function effectively. This is partly connected to the distribution between private and public saving and the scope of state ownership in Norwegian business and industry. There are also factors relating to the organisation of stock exchange trading that have had a dampening effect on the development of the market and subsequently its competitiveness compared with other equity markets. The rapid globalisation of securities markets will place greater demands on organised marketplaces and on trading and settlement systems. Not least, the development of efficient securities markets will require cross-border coordination and cooperation between national trading and settlement authorities. Certain measures have been implemented or are under consideration by Norway. In this process it nevertheless appears that Norwegian market participants have not been sufficiently active with respect to adapting to developments and ensuring a competitive position for the Norwegian securities market in the face of increasing international competition. In the Committee's opinion, the proposed new stock exchange bill can provide a better statutory basis for such adjustments.

Competition in financial markets from non-financial operators has so far been limited although changes are likely in the period ahead. In particular, the technological convergence of financial operations, information and data technology and telecommunications will create new competitive spheres and competitive arenas. This will influence the structure of the financial industry and raise new market-related and regulatory issues to which Norwegian competition and regulatory authorities will have to respond.

The Committee believes it is important to facilitate as best possible effective competition in the financial industry, thereby safeguarding the efficient use of resources. Reference is made in this context to the Committee's discussion and evaluations, particularly in section 4.8. The Committee also emphasises that dynamic efficiency should be applied as an evaluation criterion for competitive conditions in financial markets. The Committee thus emphasises the importance of a swift adaptation of the financial industry's structure to changing operating conditions and market demands and the development of new products and services in line with consumer preferences and requirements. In the opinion of the Committee, an efficient financial industry is a precondition for the Norwegian financial sector's competitiveness in the face of increasing international competition.

8.3.2 Cost factors and cost-effectiveness

Two aspects concerning the cost structure of Norwegian financial institutions should be separated from each other in an evaluation of the impact of costs on the international competitiveness of the companies. One concerns the scope and utilisation of real economies of scale and/or scope existing in the production of various financial products and services with a given technology. The other relates to how cost-effective Norwegian financial institutions are in producing products and services at a given production scale with a given technology.

The Committee finds it difficult to draw definite conclusions based on existing empirical evidence concerning the scope of real economies of scale in the financial industry. Cost factors also change as the result of new technology. Such economies of scale nevertheless appear to exist in areas such as payment systems, securities trading, investment management and non-life insurance. The Committee would also emphasise the importance of size for a market participant's ability and opportunity to take on large single commitments.

In areas with economies of scale, the Norwegian market may be too small to achieve effective utilisation. To prevent Norwegian financial institutions from experiencing cost disadvantages as a result of this, cross-border adjustments or structural solutions must be undertaken in the form of mergers, acquisitions, partnerships, alliances, etc., cf. discussion in section 8.3.1. On the other hand, areas without real cost advantages of any scope may permit Norwegian financial institutions to offer specialised or niche services in the international competitive arena.

With respect to the other cost aspect above, often called internal cost-effectiveness, it is the Committee's opinion that Norwegian financial institutions, in particular banks, have become more cost-effective over time, and that they have also improved their cost-effectiveness compared with institutions in countries with which Norway tends to compare itself. The improvement in the cost-effectiveness of Norwegian banks that took place during and after the banking crisis is an important factor in this connection. On the basis of the Committee's input concerning cost components, the personnel costs of Norwegian banks are, when assessed by certain criteria, generally lower than in other Scandinavian countries, cf. section 4.5. It also appears that Norwegian banks place considerable emphasis on cost-effectiveness as a competitive parameter, and for achieving satisfactory profitability.

The overall cost situation for Norwegian financial institutions is therefore complex and must be evaluated in this light. On the one hand, in areas where clear economies of scale exist it may be difficult to realise effective national structural solutions and compete effectively with foreign market participants because of absolute cost disadvantages due to economies of scale. On the other hand, it appears that Norwegian participants have generally enjoyed a cost advantage as the result of higher cost-effectiveness compared with a number of foreign competitors. As international competition grows, this cost advantage must be expected to diminish. In the long term, the ability to utilise existing economies of scale and scope will thus be crucial for international cost competitiveness.

8.3.3 Technology and expertise

Norwegian financial institutions started using technology in the production of financial products and services at an early stage and are generally regarded as being in the forefront internationally from a technological point of view. This has resulted in significant productivity improvements in the industry and made it possible to reduce labour input per unit produced.

Because the financial sector is highly information-intensive, it is particularly important that the use of information technology be facilitated to ensure cost-effective, fast and accurate processing of large amounts of information. For instance, Norwegian banks were among the first to introduce such solutions in the payment system. The early introduction of information technology and the associated competitive edge in this area could thus represent a competitive advantage for Norwegian financial market participants in a new international competitive environment.

Information technology is, however, developing at a very rapid pace and will bring sweeping structural, organisational, product-related and market-related changes, cf. the development of the Internet in particular. The question is whether the Norwegian financial sector will manage to maintain the competitive lead it has in information technology under these new conditions. Most financial sector business areas are committed to facilitating new solutions based on information and communications technology.

An upgrading of competencies and skills is required of employees as financial industry systems and tasks become more complicated. Section 8.3.2 states that personnel costs assessed by certain criteria are generally lower in Norwegian banks than in a number of other comparable countries, and that this could be a cost-related competitive advantage. An obvious relationship between personnel costs and remuneration of labour in the financial sector does not necessarily exist. It nonetheless appears that highly educated employees are paid less in Norway than in comparable countries. This represents a potential competitive advantage for the financial industry in general.

At the same time, Norwegian financial institutions will, to a greater degree, have to compete for qualified labour in the face of increasing international competition. The competitive advantage originally enjoyed in this area could thus be reduced or eliminated. The competitive advantage could, however, be maintained and possibly bolstered in the financial industry in which the Norwegian financial sector has specialist skills based on the structure of Norwegian industry or deliberate commitment, e.g. shipping, fishing or offshore oil activities. Increasing international competition and market integration will generally bring about a more conscious attitude towards concentrating on financial operations in which Norway has a competitive edge, or more generally comparative advantages, to exploit these specialist advantages.

With respect to the Norwegian financial industry's competitive position, the Committee has discussed the importance of maintaining head office functions in Norway for Norwegian financial institutions in the face of increased financial market integration, cf. Chapter 3. These are factors that have been touched on frequently in the debate about the direction of the Norwegian financial industry and have been emphasised in structural policy in the financial area. The question raised is whether Norway will lose particularly important financial expertise relating to head office functions if they are transferred abroad through mergers or acquisitions, and whether this will weaken the international competitiveness of Norwegian business and industry. The Committee has not assessed all aspects of the issue, but points out that the development of necessary financial expertise in Norwegian business and industry indicates that a financial knowledge network is also desirable in Norway. Because such a network largely depends on the presence of head office functions in Norway, the Committee believes that there is an intrinsic value in producing financial services in Norway on a scale that ensures the maintenance of a financial expertise network. The importance to other businesses and industries of financial expertise of a reasonable depth and breadth should also be emphasised in shaping the overall conditions for the financial industry. The Committee has not given closer consideration to specific steps for maintaining such functions under increasing financial market integration and international competition legal agreements.

8.3.4 Regulations and regulatory regime

In combination, the regulations and regulatory regime for the Norwegian financial sector constitute an important set of framework conditions for the sector's international competitiveness. It is important that regulations and the regulatory regime are formulated and practised so that they promote smoothly functioning financial markets and an efficient financial industry, that competition can take place on a level playing field for Norwegian market participants in the face of international competition, and that other competitive considerations discussed in Chapter 4 are safeguarded as far as possible.

This represents a considerable challenge, not least considering the extensive international regulatory work now under way, which provides guidelines for drafting Norwegian financial regulations. With respect to the EU, it appears that the work on implementing the EU Commission's Financial Services Action Plan is progressing faster in some areas than originally assumed. As an EEA member, Norway is directly affected by the measures implemented through this programme.

In evaluating the regulations and regulatory regime for the financial sector, the Committee has differentiated between two factors or levels:

  • Effect on Norwegian financial sector competitive conditions and competitiveness of certain overarching factors in the shaping, organising and implementation of regulations and the regulatory regime, compared with the conditions that apply to foreign participants in international competition

  • Effect on competitive conditions and competitiveness of specific regulations and provisions.

The overarching factors are of a more indirect significance to competitive conditions and competitiveness, but should nevertheless be included in an overall evaluation. This applies first and foremost with respect to formulating clearer and less ambiguous objectives for regulations and competition policy; greater predictability for market participants with respect to decisions by the authorities; more efficient processing of cases without unnecessary delays; clearer distribution of responsibilities and roles between government bodies; adapting regulations and supervisory practices to changing market and competitive conditions without an unnecessary lag; and to regulatory factors applying to international financial markets.

The Committee would underline the importance of evaluating regulations and the regulatory regime as a whole, without placing too great emphasis on individual factors that can have a negative or positive effect on the Norwegian financial industry's competitiveness. Financial industry regulations are extensive and complex and consequently it may be difficult to select individual provisions and evaluate them separately. The Committee's main task in this connection is to point out factors regarded as having particular significance for the international competitiveness of the financial industry. The evaluation below must be viewed accordingly.

There are certain regulations and regulatory regime factors that potentially could have a positive impact on the competitiveness of the Norwegian financial sector. For example, practical forms of ownership and cooperation across banking and insurance lines have long been permitted and Norway was the first country in Europe to have a single supervisory body for the entire financial industry. The Committee would also underline the importance of competent supervisory bodies and sound supervisory practices adapted and developed in step with changing market and competitive conditions. Some regulations have the same effect, including tax rules. The Committee would also underline the importance of emphasising solvency to ensure the stability of the financial industry.

In the following the Committee will point out factors which, individually and combined, may represent a competitive disadvantage for the Norwegian financial sector. The Committee's general recommendation is that these factors be studied more closely and be given high priority with a view to providing, through a regulatory framework, a level playing field for Norwegian financial market participants, thereby contributing to the realisation of the objectives outlined in section 8.2. See also the Committee's analyses and discussions of these factors in Chapters 4 and 5.

On the overarching level the Committee would point out the following:

  • that competition policy is actively enforced in the financial area to ensure effective competition for the efficient use of resources

  • that there is a clear and transparent distribution of responsibilities and duties between the regulatory and competition authorities in the financial industry. Duplication among the competent authorities should be limited to the appropriate extent

  • that administrative procedures at government level and appeal systems for official decisions are organised with a view to promoting efficiency, clarity in decision-making roles and powers, and a high degree of independence between government bodies when making decisions

  • that the central government's duties and responsibilities as a policy body, regulatory authority and owner of financial institutions are clarified and that the division of roles and exercise of state ownership do not create competitive disadvantages for the financial industry

  • that the quality of supervisory work is developed in response to changes in market and competitive conditions and that more international supervisory cooperation is developed

  • that Norwegian regulations in the financial area are well adapted to the market and competitive conditions in financial markets and that regulations and regulatory provisions are harmonised with international rules, to the extent that the lack of such harmonisation may hamper the competitiveness of the Norwegian financial industry. As an EEA member, adapting to EU regulations will be particularly important for Norway. It should, however, be underlined in this connection that EU regulations vary slightly from country to country and to some extent also feature maximum or minimum rules with respect to compliance. The trend in the EU is nevertheless clearly one of further harmonisation of regulations. The Committee refers in this connection to a paper by Mr. Sverre Dyrhaug, Norwegian Financial Services Association, cf. appendix 3.

With regard to competitive conditions and competitiveness-related effects of specific Norwegian rules and provisions that could represent a potential competitive disadvantage for the financial industry, the Committee has evaluated the following:

Core capital adequacy in financial institutions.

  • Core capital adequacy requirements in Norway have been tightened partly through rules concerning the weighting of housing loans and partly through rules for raising new supplementary capital with a fixed term in the event core capital ratio is under 7 per cent. The increased core capital requirement will generally increase the banks' total financing costs, but can also influence their rating and consequently their borrowing costs in markets. Overall, this may entail a competitive disadvantage vis-à-vis foreign participants who are not subject to the same requirements. In the opinion of the Committee, these are factors that should be examined more closely with a view to adapting to rules that apply internationally.

System for calculating the contribution to banks' guarantee funds

  • The Norwegian deposit guarantee system is different from the rest of the EEA in several respects, including the level covered and the basis of calculation of the premium. The Committee recognises that there are some disadvantages connected with the Norwegian guarantee fund model, particularly a cost-related competitive disadvantage for the banks that have to pay the full contribution. On this basis, the Committee believes it would be useful to evaluate certain aspects of the system when the law is reviewed.

Regulation of life insurance activities

  • Overall regulation of the life insurance industry consists of a number of individual regulations issued over a period of years and which are intertwined in various ways. In connection with the Committee's discussion of the competition-related effects of the regulation of life insurance companies, the Committee has discussed an outline for an alternative regulatory model presented to the Committee in a paper by Professor Asbjørn Rødseth, based on a talk he was asked to give for the Committee. The Committee has also taken note of a paper by Professor Erling Selvig containing remarks about the regulation of life insurance in Norway and a paper from the Norwegian Financial Services Association containing a proposal for modernising the operating rules in life insurance. The Committee has, however, not taken a specific position on the viewpoints and assessments set forth in these papers, but believes they should be included as part of the review of the regulation of insurance companies. The Committee believes there is a need for undertaking such a review of life insurance regulations with a view to simplifying and modernising them, and that such a review should be given high priority to ensure that the framework conditions applying to Norwegian life insurance companies promote efficient operations and competition on the same terms that apply in other countries. The three papers are included as appendices to the Committee's recommendations.

Capital adequacy requirements for insurance companies

  • In Norway, insurance companies must meet capital adequacy requirements for credit risk in addition to the solvency margin capital requirements set out in EU directives. In some connections this may tie up capital in Norwegian insurance companies, and thus represent a competitive disadvantage in relation to foreign companies. The regulations for diversified financial conglomerates are currently being assessed in the EU. Against this background, and in the light of the review of the regulation of insurance companies, the Committee recommends a review of the capital adequacy requirements for insurance and diversified financial conglomerates.


  • Under current rules, ownership interests beyond certain thresholds in other financial institutions are deducted when calculating a financial institution's capital. Norwegian rules are stricter than the EU's minimum requirements. Deduction requirements were recently relaxed for insurance companies. Moreover, the Ministry of Finance is currently assessing a proposal to change the application of capital adequacy rules on a consolidated basis, which will permit the use of proportional consolidation. On the basis of these changes, the Committee believes that the risk of any competition-related disadvantages resulting from the cross-ownership rules will be reduced for Norwegian insurance companies. In the opinion of the Committee, a renewed evaluation of cross-ownership rules should also be included in an overall evaluation of the capital adequacy rules for financial institutions. As mentioned above, the Committee has proposed that a review be undertaken of the capital adequacy requirements for insurance and diversified financial conglomerates, in the light of the EU's evaluation of the capital structure of diversified financial conglomerates. Reference is also made to the general revision of the Insurance Act recommended by the Committee.

Securitisation and asset-backed bonds

  • Securitisation means that a group of assets are sold by a financial institution to a company that finances the purchase by issuing bonds. While securitisation has so far not been used in Norway and is not widespread in the other Nordic countries, it is frequently used in countries such as the US and the UK. The Committee sees both advantages and disadvantages associated with securitisation, but has not assessed legal aspects. In the light of the fact that the authorities in most EEA countries now allow securitisation, the Committee recommends that work continue with a view to giving Norwegian banks permission to securitise parts of their loans.

  • Currently, however, the market seems to be more interested in other new instruments such as asset-backed bonds. These are bonds that are collateralised using a specific component of a financial institution's portfolios. Several EEA countries permit the issuance of asset-backed bonds. The Committee assumes that Norwegian banks will be at some disadvantage if they are not permitted to do so. The Committee has pointed out some aspects of this instrument which should be examined more closely before such permission is given in Norway. The Committee is aware that the Banking Law Commission is studying this question and assumes that in its assessment it will emphasise the elements highlighted by the Committee.

Investment management

  • The Committee believes it will be important to develop private investment management in Norway in order to meet increasing international competition. This will primarily be a task for the private participants concerned. The authorities should review current management practice in the light of legislation and practices in other EEA countries, with a view to evaluating to what degree it is possible to combine the separation and sound management decision requirements ensuing from the UCITS Directive with a view to promoting broad, competent and competitive management activity in Norway.

8.3.5 Demand factors and customer relations

The evaluation of the Norwegian financial industry's competitive advantages and disadvantages has so far chiefly focused on factors on the supply side in financial markets. Factors on the demand side are, however, equally important, including how Norwegian non-financial buyers of financial services assess the competitiveness of Norwegian financial participants with respect to various competition parameters in relation to foreign suppliers, and whether buyers receive the necessary market information in order to make rational decisions and choices.

At the request of the Committee, the Foundation for Research in Economics and Business Administration conducted a survey among a representative sample of non-financial Norwegian companies about their choice of suppliers of financial services. The report is enclosed with the study. A summary of the results and conclusions is given in section 4.6.

The purpose of the survey is to identify to what extent Norwegian non-financial companies use foreign suppliers of various financial services. Another aim was to uncover which factors, including price, capacity, expertise, service, market knowledge etc., are determining factors in these companies' demand for financial services, and how the companies emphasise the various factors in choosing between Norwegian or foreign suppliers of various types of financial services.

The survey shows that foreign suppliers were used by Norwegian companies in the sample mainly for purchasing loans and currency services. At the time of the survey, all loans in the sample from foreign financial institutions accounted for 26 per cent of the long-term debt of the companies, while currency services amounted to 15 per cent. The fund management share was the smallest.

The selection of suppliers and customer satisfaction is determined in part by structural features of the companies, expressed as the degree of globalisation, and partly by attitudes to Norwegian and foreign financial institutions. The survey shows that companies that only use Norwegian financial institutions are generally more satisfied with Norwegian institutions than companies using foreign financial institutions. The results indicate that additional requirements, prices, relevant market knowledge, flexible loan terms, innovative abilities and personal service determine a company's satisfaction with credit institutions, while it is only price and additional requirements that seem to be the determining factors for the actual choice between Norwegian and foreign credit institutions. The results furthermore indicate that it is mainly attitudes that explain how satisfied companies are with Norwegian companies compared to foreign insurance companies. Actual use of foreign non-life insurance seems to a large degree to be influenced by factors such as general insurance terms, how the companies emphasise the importance of personal contact with the insurance companies and the insurance companies' ability to acquire specific knowledge about the company.

The concluding chapter of the report contains a discussion of some implications of the results for Norwegian financial institutions' international competitive position and competitiveness in the face of increased international competition and market integration. The authors also include some views on the adaptation of Norwegian financial participants to changes in the international competitive situation. They maintain that it may be appropriate for Norwegian financial institutions to enter into partnerships and alliances with both Norwegian and foreign institutions, so that they can offer the companies a «network of cooperating financial institutions», which in combination can cover the companies' need for financial services.

The Committee finds the results of the survey interesting for evaluating Norwegian financial institutions' competitiveness seen in relation to customer choices and customer satisfaction. The results must be evaluated in the light of the sample size and statistical significance. They also provide a static picture of the situation at the given survey time. Given the quickly changing market and competitive conditions in financial markets, it will be interesting to conduct a similar survey at a later stage

In section 8.2 the Committee assumes that sufficient market transparency and access to information should be ensured so that Norwegian consumers of financial services can make rational decisions and choices. Developments in financial markets place greater demands on such transparency. This applies not least to more complex products and cross-border financial services. Market transparency is also important for reducing information asymmetry in the market, thereby contributing to more effective competition.

In order to ensure access to information, financial market participants are subject to disclosure requirements. For example, banks are required to provide information about effective interest rates for loans and life insurance companies are required to provide information about certain aspects of insurance contracts, cf. section 4.1.1. Information measures of this type have also been implemented by the financial industry itself.

The Committee would underline the importance of measures to ensure market transparency in financial markets and consumer choice in the face of intensified international competition. In the opinion of the Committee, this should primarily be a task and responsibility for the financial industry. Consideration should also be given as to whether developments will require new measures by the authorities in this area, including cooperation with other countries, particularly in the EEA, in order to ensure market transparency of cross-border trade in financial services.

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