Also, potential investors such as private banks, investment funds and hedge funds have become reluctant to invest at these levels and adopted a wait and see attitude, in the hope of even better spreads or clearer signs about future directions. As a consequence of this increase in risk aversion, the primary market is facing a mismatch between supply and demand: issuers do not want to sell at current conditions, and investors do not want to buy until prices have bottomed out. 4. The Eurosystem’s collateral framework and the ABS market during the turmoil  Let me dwell a bit on the role of our operational and collateral framework during the turmoil. Since its inception the operational framework of the Eurosystem has been tested on several occasions. The present market turmoil has posed new challenges, and in many aspects even more significant than those faced in the past. Overall, the Eurosystem’s operational framework, including its collateral-related component, has served us well during the market turmoil and has proven robust under stressed conditions. One contributing feature to its resilience is the fact that a broad range of counterparties, including all types of credit institutions irrespective of their size and the scope of their business, may access the credit operations of the Eurosystem, including the temporary refinancing operations. Moreover, credit is granted against a wide range of collateral. This implies that sufficiency of collateral should not become a constraint for counterparties.

Finanstilsynet (the Financial Supervisory Authority of Norway), for example, sets limits on the size of a single loan in relation to the collateral provided. Another possible measure is to set minimum requirements for the risk weights banks can use in their internal model-based approach to calculating capital adequacy. 46  As an extraordinary measure, in connection with the establishment of the swap facility, 2- and 3-year fixedrate loans specially designed for small banks were allotted. This was extensively explained in the Storting documents. 47  See also Peter Stella: “Minimizing Monetary Policy”. Paper presented at the Annual General Meeting of the Bank for International Settlements in June 2009. http://www.bis.org/events/conf100624/stellapaper.pdf  48  The mechanism in known in economic theory, see the Modigliani-Miller theorem. BIS Review 154/2010  15  In other countries the procedures are now being revised to allow central banks to participate when such discretionary measures are implemented. In Norway, Finanstilsynet is highly competent in the oversight of individual institutions. However, Norges Bank has more competence in macroeconomic matters, given its tasks. The central bank also has an informational advantage as we are the bankers’ bank and operate in foreign and domestic markets. The division of responsibility should be based on the advantages specific to each organisation. The Ministry of Finance should define the objective of macroprudential supervision and delegate its use. The Ministry must also assess whether the objective has been achieved. One alternative is to delegate responsibility for implementing discretionary measures against systemic risk to Norges Bank.