Financial stability implies that the financial system is robust to disturbances in the economy and can channel capital, execute payments and redistribute risk in a satisfactory manner.

Experience shows that the foundation for financial instability is laid during periods of strong growth in debt and asset prices. Banks play a central part in extending credit and mediating payments and are therefore important to financial stability.

However, definitions of financial stability may vary across countries and institutions. Norges Bank has chosen a broad definition (see speech of 12 May 2005 by Svein Gjedrem, Governor of Norges Bank).

Macroeconomic stability is an important precondition for financial stability. The authorities seek to safeguard financial stability through measures that are designed to prevent problems arising in a market or financial institution and spreading to other markets or institutions. Deposit guarantee schemes, capital adequacy requirements and other regulations have been introduced for this purpose. There is ongoing work, both nationally and internationally, to make institutions and markets more robust in the face of economic disturbances.

In Norway, the authorities' work on financial stability is divided between the Ministry of Finance, Kredittilsynet and Norges Bank. See also attachment to the Submission of 16 December 2005 on this collaboration.

• The Ministry of Finance has the overall responsibility for ensuring that Norway's financial industry functions smoothly. The Ministry also has an important role to play in coordinating the activities of the three institutions in the event of a financial crisis.
• Kredittilsynet has primary responsibility with regard to financial strength, management and control in financial institutions, and directly supervises financial sector participants.
• Norges Bank shall promote a robust and efficient financial system. Norges Bank therefore monitors financial institutions, securities markets and payments systems in order to detect any trends that may weaken the stability of the financial system. Should a situation arise in which financial stability is threatened, Norges Bank and other authorities will, if necessary, implement measures to strengthen the financial system. Norges Bank may supply extraordinary liquidity to individual banks or to the banking system as a whole. Norges Bank's responsibility for the stability of the financial system has its basis in Sections 1 and 3 of the Norges Bank Act.

In 2005 IMF assessed the stability of the financial system in Norway. See the report Norway: Financial System Stability Assessment, including Reports on the Observance of Standards and Codes on the following topics: Banking Supervision, Insurance Regulation, and Payment Systems (pdf, 692 kB)

Norges Bank's work on financial stability is organised in Norges Bank Financial Stability. The area's primary responsibilities are monitoring and analysing financial institutions, financial markets and the infrastructure for clearing and settlement, discharging the Bank's responsibility for authorising interbank systems, executing settlement between banks that participate in Norges Bank's settlement system (NBO) and ensuring the supply of cash