When economic growth slows, problems in enterprises and countries with high debt burdens rise to the surface. There has been constant unrest in countries like Turkey and Argentina, which are struggling with high borrowing costs. Japan has not yet recovered from its more than 10-year-long banking crisis and is vulnerable to new shocks. Up to this autumn, the effects of the international turnaround on the Norwegian economy were limited. It now appears clear that Norway will also be affected by the slowdown. A number of Norwegian enterprises in export industries and the travel industry have felt the effects of growing caution among households and businesses worldwide. Investment in mainland enterprises will probably also decline. 6  BIS Review 86/2001  Domestic credit growth remains high, and since 1993 has been stronger than growth in value added measured in terms of GDP. Banks in particular have contributed to this. At times, growth in lending has been markedly higher in savings banks than in commercial banks. At the end of August, year-on-year growth in lending was 11.7 per cent for savings banks and 9.2 per cent for commercial banks, when adjusted for portfolio transfers. There seems to be an indication of growing competition for market shares. Savings banks are also competing increasingly in commercial banks’ traditional business areas. There is a risk of overcapacity. Credit growth in both the household and enterprise sectors has been strong. At the end of August, year-on-year growth was 11 and 9.1 per cent respectively.

This also entails increased international cooperation. Many financial crises in the 1980s and up to today have occurred in countries where rules and supervision are relatively ineffective. As a result, the financial sector has become fragile. The capital strength of financial institutions has been inadequate. Deregulation has occurred before the country’s financial infrastructure is in place. This has fuelled the build-up of financial bubbles. Large fluctuations in capital movements have often intensified the problems. Elements of this were also present during the banking crisis in the Nordic countries. The financial safety net should help prevent financial instability and curb the effects if instability should arise. This may also prevent the development of imbalances. Deposit guarantees, crisis liquidity schemes and the assumption that large banks will be rescued by the government may weaken market discipline. The result may be increased risk-taking. International organisations have developed international codes and standards for the financial infrastructure and for the regulation and supervision of the financial sector, which are in line with good 10 practices. These codes and standards should contribute to improving policy and creating more robust financial systems. They should make it easier for investors and others to keep abreast of developments, which in turn will increase their ability to assess risks in a country. This will reduce the risk of herd behaviour and the build-up of substantial imbalances. The International Monetary Fund plays an important role in international surveillance and crisis management. They have substantially strengthened their oversight of the financial systems in member countries.