Improved efficiency is another factor that explains the high level of profitability in the Norwegian business sector. At the same time, there has been an ample supply of foreign labour, which has probably had a dampening impact on wage growth. In addition, increased globalisation in general may have broadened the scope for Norwegian enterprises to relocate production to other countries if labour costs become too high. Such a development probably places some restraint on wage demands among workers in sectors where enterprises have such opportunities. Is it possible to sustain the combination of low employment and low wage shares? First, it partly depends on whether the positive supply-side conditions are sustained. There is probably symmetry here. Should the terms of trade deteriorate, productivity growth slacken and foreign workers return to their home country, the wage share will increase, profits fall and unemployment increase. Second, even without a reversal profits may fall and unemployment rise. The implications of this will depend on how far businesses, in their search for qualified labour, will stretch themselves in bidding up wages. This will also depend on how employees react and their adaptability as well as developments in benefit schemes and other social schemes. Long periods of rapidly rising property prices and debt can be a source of future instability in the real economy. Should monetary policy give weight to developments in property and credit markets beyond their impact on inflation? Low interest rates have fuelled the rise in property prices and debt accumulation.

The CCAR is a significant supervisory innovation intended to ensure that large, complex bank holding companies have robust internal capital planning processes and sufficient capital to withstand stressed economic conditions and to continue to be viable financial intermediaries. Importantly, the CCAR takes a forward-looking perspective in assessing a bank’s capital adequacy, including ensuring that its internal stress testing processes address its unique vulnerabilities and exposures. The CCAR should push banks to proactively manage their capital so as to be well prepared for the type of market stresses that could cause significant declines in income and capital. Other steps could be taken to complement the CCAR. One approach would be to implement a long-term debt requirement in a way that further enhances market discipline and provides incentives for regulators to promptly intervene if necessary. Another might be to structure compensation practices to strengthen senior bank managers’ incentives to proactively manage risk. For example, imagine how incentives would change if a significant portion of senior bank management’s compensation each year were deferred to be available to cover future capital losses. I suspect that over time this would meaningfully alter management’s risk tolerance. Also, in addition to the quantity of the deferred compensation, the form it takes could also affect incentives. If most of the deferred compensation were in the form of debt rather than equity, I suspect this would also affect management’s risk tolerance and the appetite to cut dividend payments, reduce share repurchases or raise more capital more promptly when the firm began to become stressed.