If systemically important domestic institutions expand abroad, central banks - with responsibility for financial stability - will have to assess the risks involved. In addition, structural changes also influence central banks’ role as “lender of last resort”. Although structural changes alter the risk profile of the financial system, they shouldn’t be viewed as negative. On the contrary, these changes may be necessary to reap the benefits of more efficient intermediation of savings and better risk management. Changes are thus something the authorities should facilitate and adapt to - through high quality supervision and surveillance and through regulatory changes if necessary. Currently a variety of regulatory initiatives are being discussed. Important examples are the EU Financial Services Action Plan, the revision of the Basel Capital Accord, and the different initiatives gathered under the heading of “New Financial Architecture”. However, as the current wave of consolidation progresses, the authorities must take the necessary steps to ensure an adequate level of competition. While executing this task, the authorities should recognise that the competitive environment of the financial sector has changed and will continue to do so. Furthermore, it is important that the market surveillance function is improved. Increased transparency and harmonisation of regulation and industry practices are particularly important in this respect. However, enhanced supervision, international cooperation and regulatory changes are not enough. Improving institutions’ own risk management systems is a key challenge. It is vital that these systems develop as the structure and activities of institutions change. 7.

Svein Gjedrem: Developments in the Nordic financial industry a central banker’s perspective  Address by Mr Svein Gjedrem, Governor of the Norges Bank, at the Nordic Financial Services Conference, held in Stockholm, on 18 September 2000. * 1. *  *  Introduction  What is the future of the Nordic financial services industry? Who are the winners in the consolidation process? What is the potential of e-business and the Internet? This is just a sample of the important and challenging questions that will be discussed at this conference. Fortunately, it is the task of my fellow speakers - and not mine - to try to answer them. Given their background as significant market participants, I am sure that they will provide us with some valuable insights. Today, most central banks follow structural developments in the financial sector from the sidelines. This has not always been the case. The post-war period was characterised by heavy regulation. The domestic authorities controlled market prices, financial flows and the structure of the financial sector. There was little foreign influence. Gradually, markets were deregulated and became more internationally integrated. The central banks’ main instrument is now the setting of interest rates. The main objectives of central banks have stayed the same: monetary and financial stability. Although deregulation is now completed in the industrialised countries, its full impact on the financial structure remains to be seen. In addition, technological developments, internationalisation and increased focus on shareholder value are creating pressures for structural change.