In order to shed further light on the distribution of debt and assets between households, Norges Bank now analyses data for households included in the income and wealth survey published by Statistics Norway (2003). The data cover 17,000 households, of which 14,000 have debt. The chart on the left presents the relationship between gross income and debt for households with debt. The households with the highest debt and income have been excluded. For approximately 1,400 households, debt is higher than three times their income. For the entire population, this figure would be scarcely 200,000 households. Income is the first line of defence against debt-servicing problems. The next line of defence is financial assets. The chart on the right shows the relationship between debt and financial assets for the same households. Many of the households have very limited financial assets. Households with less than NOK 19,000 in financial assets account for a total of NOK 198 billion in debt. This represents a quarter of the households. 1  See Norges Bank’s Inflation Report 2/05. 5/6  Consequences of developments in household debt The household interest burden, i.e. interest expenses after tax in relation to the sum of interest expenses and disposable income, is low despite strong growth in debt. The interest burden will increase, however, when the interest rate reaches a more normal level. Only 14 per cent of household loans are fixed-rate loans. This is low in relation to other countries and makes households vulnerable to an interest rate increase that is higher than expected.

Banks’ exposure to reputation risk also changes since problems in another, non-banking part of the conglomerate may influence and damage the bank’s reputation. In terms of financial stability, it may nonetheless be an advantage that bank conglomerates spread their revenue base. This is particularly true if earnings from new activities do not fluctuate in step with earnings from traditional banking activities. However, this is not entirely certain since most sources of bank revenues failed during the banking crisis at the beginning of the 1990s. Risk diversification through the securities market Credit that is channelled directly through the securities market diversifies risk and thereby eases the burden on the banking system. Developments in the securities market have made it easier for banks to vary their financing. In addition, the emergence of a number of new credit sources and new instruments has made it possible for banks to engage in risk trading. Therefore, it has also become easier for banks to diversify risk. The structure of the financial system varies considerably across countries. This is illustrated by the different ways enterprises finance their activities. Norwegian enterprises have a fairly low level of borrowing in the bond and short-term paper market, representing as little as 8 per cent of total financing. Different financing structures mean that the risk associated with extending credit and providing other financial services varies across countries. It is an advantage for enterprises and other operators in the financial market to have several financing sources to draw on.