Norway should make a rapid transition to Basel III
“Norwegian banks’ earnings are solid and many banks have improved their financial strength over the past year. Stresses in the international economy and financial markets are a source of risk for banks. Household debt burdens remain elevated, with the prospect of a further rise ahead. High house prices and substantial debt may pose a challenge to financial stability”, says Governor Svein Gjedrem in connection with the publication of the report Financial Stability 2/10.
“The Basel Committee on Banking Supervision has provided banks with a long transition period for introducing the new capital and liquidity requirements. Norwegian banks are faring well and growth in the Norwegian economy now seems to have gained a firm footing. The new standards can therefore be introduced somewhat faster here”, says Governor Svein Gjedrem. Banks that satisfy the new minimum requirements with a good margin will also be well positioned to weather a future crisis.
“An important lesson to be drawn from the financial crisis is that major sources of funding can suddenly dry up. Banks should seek to increase their deposit-to-loan ratio and increase their long-term market funding. When Norges Bank sets the terms for the banks that have access to the central bank’s lending facilities, it may be relevant to give weight to their liquidity management”, says Governor Svein Gjedrem.
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