– Recent turmoil in international financial markets has been a reminder that the Norwegian economy is vulnerable to developments abroad, International financial markets, and even more so, economic developments in many countries, are still affected by the aftermath of the financial crisis. Severe tightening of fiscal policy and mounting uncertainty for households and corporations have resulted in millions of people now being out of work, says minister of finance Sigbjørn Johnsen.
Today, the Norwegian Ministry of Finance submits the annual financial markets report to the Storting. This year, parts of the White Paper are made available in English. The English-language version of the report includes accounts of developments in Norwegian and international financial markets, key legislative initiatives and Norges Bank's conduct of monetary policy, as well as a discussion of social responsibility in the Norwegian financial sector.
The Norwegian economy performs well, but important domestic risk factors are on the rise. Both housing prices and household debt are at an all time high. At the same time, interest rates are very low.
More loss-absorbent capital in banks will contribute to the competitive position of Norwegian financial institutions and prop up the Norwegian economy. The Ministry aims to strengthen capital requirements for banks – the first line of defence against bank crises – in several ways. The progression of these initiatives depends on international treaties and developments in the Norwegian real economy.
The regulatory developments in Norway now largely reflect the work being done on new rules in the EU. In Norway, efforts are being focused, among other things, on how best to implement the expected EU/EEA rules corresponding to the Basel III standards (the CRD IV rules) on capital and liquidity requirements for banks.
– It may be sensible to introduce the new capital requirements in Norway now, while economic conditions are good, so that the increased capital can function as a buffer if economic conditions worsen. It is important to use national options to make the Norwegian regulatory framework conducive to sound financial institutions, says minister of finance Sigbjørn Johnsen.
The second line of defence is effective crisis management. In Norway, the Norwegian Banks' Guarantee Fund is set up to handle problems in the banking system. In accordance with the provisions in the Guarantee Schemes Act, the target level of the Norwegian Banks' Guarantee Fund, also implies a "ceiling" on the size of the Fund. The Ministry has concluded that there may be good reasons for removing this "ceiling" now. This will allow the Fund to build up capital, so that it is better prepared to handle potential problems in the banking sector. Today, the Ministry has issued a public consultation on a draft proposal to abolish the Guarantee Fund "ceiling".