Renewed market turbulence
“There is renewed financial market turbulence abroad owing to high government debt in many countries, but measures taken by the EU, ECB and IMF this past weekend seem to have calmed financial markets. Norges Bank is monitoring money market developments closely and will contribute to smoothly functioning markets. The financial stability outlook is otherwise approximately unchanged since the previous report, but better than one year earlier,” says Deputy Governor Jan F. Qvigstad in connection with the publication of the report Financial Stability 1/10.
Norwegian banks have posted good earnings, and the banks are more solid than one year earlier. More resilient banks will reduce the risk of future crises in the financial system. The EU and many countries are therefore working to introduce enhanced bank liquidity and capital regulations. New regulations – with minimum standards – will be introduced in Norway via the EU and the EEA Agreement. Under the new regulations, banks will be required to raise more long-term funding and hold more liquid assets.
“Even if progress has been made in the work on new regulations, much remains to be done,” says Deputy Governor Jan F. Qvigstad:
- Nordic cooperation in the area of banking regulation, supervision and crisis management can contribute to sufficiently tight and uniform regulatory practice for all banks that operate in the same market.
- It is unclear how systemically important banks should be regulated and how to reduce the procyclicality of bank behaviour.
- The accumulation of high household debt may lead to financial and economic instability in the longer term. More neutral property tax and capital requirements for mortgages that reflect to a larger extent overall residential mortgage risk would mitigate the risk of instability.
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