Norway is part of the European Economic Area, and EU regulations are thus applicable in this country. Within the remaining national discretion, Norwegian regulations are laid down by the Ministry of Finance, and implemented by the Financial Supervisory Authority. But Norges Bank aims to be an active advisor on these issues. Our work on macroprudential supervision provides insights that we wish to share with other supervisory authorities. The second component of macroprudential policies consists of short and medium term measures to alleviate the effects from the procyclical behaviour of financial institutions. There are two macroprudential aspect of procyclicality. It is the common exposures of a group of  BIS Review 112/2010  1  financial institutions. And it is the interconnectivity of financial institutions through trading and credit relationships. Common exposures are probably the most important of these interdependencies for crisis generation. Individual institutions can look perfectly healthy even when vulnerabilities are building up on the systemic level. The prime example of this phenomenon is naturally lending stimulating a price bubble in the property market. Developing time-varying macroprudential policies is not straightforward. The interest rate policy targets the inflation rate, and cannot always be set as would be appropriate for asset prices. There might be conflicting targets. We should thus be looking for new instruments. As you are certainly aware, most of the macroprudential policy instruments that have been proposed are the same as those already being used for microprudential purposes.

Examples are loan-to-value or loan-to-income limitations, and add-ons to the risk weights on relevant bank exposures. The latter instrument is being used in New Zealand, where supervisors have recently introduced a 15 percentage point risk weight add-on to property lending. Since these instruments are also microprudential, they are all in the domain of the Financial Supervisory Authority and are needed there. But the macroprudential objective is different from the microprudential, and may call for different calibration of the instruments. The implementation may for practical reasons need to rest with the FSA. But Norges Bank can make strong recommendations on how these instruments shall be used for macroprudential purposes. We shall seek very close cooperation with the Financial Supervisory Authority to implement our macro prudential agenda. The Nordic region is currently close to being a separate banking market, where non-Nordic banks have small market shares. But branches with parents in other Nordic countries have substantial market shares in all national markets. There is scope for fruitful cooperation between the Nordic supervisory authorities. The countercyclical buffer proposal from the Basel committee includes a prescription to that effect. It stipulates that the time-varying capital buffer targets shall be applicable to all banks operating in a jurisdiction, including branches of foreign banks. The home supervisor shall impose the buffer decision of the host supervisor. This is a step in the right direction, but differences in risk modeling will remain.