Foreign bank branches and subsidiaries have more than doubled their market share in the Norwegian banking market since 1999. The share is considerably higher than in Sweden and Denmark, although the proportion of foreign institutions has also increased markedly in these countries. The sharp rise in Finland is due to Nordea’s becoming a Swedish rather than a Finnish bank in 2004. Cross-border activity contributes to increased competition, a wider range of options for operators and the sharing of expertise. With banks from several geographical markets, the financial system is also less vulnerable to cyclical developments in any one country. Growth in new, less well-known markets makes risk assessment more demanding. A consequence of cross-border institutions may also be that turbulence in financial markets in one country more easily spills over to other countries. Moreover, a crisis may be more complicated to resolve in an internationally active institution than in a national institution. Conglomerates The trend in financial markets is moving towards large financial conglomerates and alliances. In addition to traditional banking services, these conglomerates also offer other financial services. Large banking and financial groups in Norway have substantial market shares in several sectors. Compared  2/6  with other Nordic banking conglomerates, Norwegian banking conglomerates earn a larger share of their revenues from services outside the bank itself. Banks that grow into other sectors will face challenges relating to risk management, product knowledge and customer relations.

Banks have a total market share of over 50 per cent, while mortgage companies and finance companies have a combined share of 14 per cent. Growth in financial markets makes it easier to channel savings surpluses to customers with sound investment plans. It also makes it easier to diversify risk. Both enhance the economy’s growth potential. At the same time, a larger financial sector may increase the consequences of financial instability for the real economy. 1/6  As a result of globalisation, debt and financial assets are now more widely distributed across countries. Home bias has declined. This has reduced the risk in the financial system and improved the relationship between risk and return. The Government Petroleum Fund has contributed to a sharp decline in home bias in Norway. In recent years, Norwegian life insurance companies have also invested more of their capital abroad. Tendency towards larger entities and increased concentration National consolidation In the past few years, domestic mergers and acquisitions have been a central feature of the European banking industry. Concentration, which can for example be measured by the size of the five largest credit institutions, varies considerably across countries. However, concentration generally appears to be higher in small countries than in large ones. It is not particularly high in Norway, and is lower than in Denmark, Finland and Sweden. Developments in the number of credit institutions are another measure of market consolidation. The total number of credit institutions in the euro area has been sharply reduced over the past eight years.