Financial stability - a primary objective
The role of issuer of means of payment and ultimate settlement bank for interbank payments in Norway gives Norges Bank a particular responsibility for fostering efficient and secure payment systems.
Financial stability is one of Norges Bank's primary objectives in its efforts to ensure economic stability. A stable and well-functioning financial system is important for ensuring funding and distribution of risk in the economy. Norges Bank shall monitor the payment system and financial infrastructure and contribute to emergency preparedness.
Mandate and legal basis
Norges Bank’s tasks and responsibility for financial stability are set out in the Norges Bank Act and the Payment Systems Act.
What does the Norges Bank Act state?
Norges Bank's tasks and responsibilities in this area are set out in Section 1 of the Norges Bank Act which states that the Bank shall "promote an efficient payment system domestically as well as vis-à-vis other countries", but that the Bank may also "implement measures customarily or ordinarily taken by a central bank". Section 3 states: "The Bank shall inform the Ministry when, in the opinion of the Bank, there is a need for measures to be taken by others than the Bank in the field of monetary, credit or foreign exchange policy." According to the Payment Systems Act, which entered into force in 2000, Norges Bank is the licensing authority for the banks' clearing and settlement systems, i.e. the interbank systems.
Norges Bank's responsibility
The financial crisis has shown that the costs of financial instability are substantial. For that reason there is an ongoing effort, nationally as well as internationally, aimed at making institutions and markets more robust to economic shocks. Although Norges Bank has a direct, overriding responsibility for taking action to limit risk in the Norwegian payment and settlement systems, the Bank also provides advice and other input to the Ministry of Finance and Finanstilsynet in drafting financial sector legislation.
Norges Bank is also responsible for setting the countercyclical capital buffer rate.
Division of responsibilities among government authorities
In Norway the authorities’ work on financial stability is shared among the Ministry of Finance, Finanstilsynet (Financial Supervisory Authority of Norway) and Norges Bank:
The Ministry of Finance has overriding responsibility for ensuring that Norway has a well functioning financial industry. The Ministry also plays a key role in coordinating the three government bodies’ activities should a financial crisis occur.
Finanstilsynet has a particular responsibility for solvency, management and control in financial institutions and has direct supervisory authority over financial sector participants.
Norges Bank shall promote a robust and efficient financial system. Norges Bank therefore monitors financial institutions, securities markets and payment systems to identify trends that may weaken the stability of the financial system. If a situation should arise that poses a threat to financial stability, Norges Bank and other authorities will, if necessary, take action to strengthen the financial system. Norges Bank will be able to provide extraordinary liquidity to individual banks or to the wider banking system. Norges Bank is also responsible for setting the countercyclical capital buffer rate.
Both Norges Bank and Finanstilsynet (Financial Supervisory Authority of Norway) have supervisory duties vis-à-vis payment systems. To clarify the working relationship and division of roles, two Memoranda of Understanding (MoU) have been drawn up, one for tasks pursuant to the Payment Systems Act and one that deals excusively with securities settlement systems and clearing houses.
It is essential for the authorities to have a common understanding of the situation in financial markets and for any special actions to be coordinated. The collaboration between the Ministry of Finance, Finanstilsynet and Norges Bank was further formalised in 2006 by the introduction of regular meetings attended by the three institutions and chaired by the Ministry of Finance. Held approximately every six months (more often if necessary), the tripartite meetings address the financial stability outlook. Programmes for and experience from dealing with crises and other contingency planning issues are also discussed.
Description of the collaboration between Finanstilsynet and Norges Bank (letter of 16 December 2005).