Adequate capital and liquidity buffers in banks are the “first line of defence” in any crisis management system. In Norway, the Norwegian Banks’ Guarantee Fund is a “second line of defence”. The Fund shall insure customers’ deposits (up to NOK 2 million) if a bank is forced to close. The Fund can inject equity and provide loans to a distressed bank if this is a better solution than liquidating the bank and paying deposit insurance claims.
Government authorities will be able to step in when a crisis becomes too severe for industry to deal with on its own (“third line defence”). In the event of a systemic crisis, Finanstilsynet, Norges Bank and the Ministry of Finance will assess the situation and take the necessary action. Crisis preparedness is discussed regularly at meetings of the three bodies.
The Guarantee Schemes Act provides detailed guidelines for the authorities in dealing with banking sector liquidity and solvency crises. The Act, passed in 1996, gives the authorities extensive scope for preventing crises or dealing with crises once they occur. Finanstilsynet and Norges Bank are also represented on the board of the Norwegian Banks’ Guarantee Fund, which plays a key role in dealing with bank crises in Norway.
The Nordic countries’ central banks have concluded an agreement on managing a crisis at a bank with operations in more than one Nordic country:
Norway has signed an agreement between all the key EU authorities (central banks, financial supervisory authorities and finance ministries) on cooperation on managing a crisis at a bank with operations in more than one signatory state:
As a follow-up, a separate agreement was signed between the corresponding authorities in the Nordic and Baltic countries: