Perhaps due to location and transport links, Denmark is a centre for trade and the location for the Nordic headquarters of a number of international companies. The Norwegian enterprise sector, on the other hand, is heavily influenced by our natural resources. 3  BIS Review 78/2000  3. Monetary and financial stability  I would now like to address the key objectives of most central banks: monetary and financial stability. What do these two terms mean? Monetary stability is interpreted somewhat differently in various countries. The most common definition is price stability - that is to say the stability of the internal value of money. Sometimes it is interpreted as exchange rate stability - in other words the stability of the external value of domestic money. Finland, Sweden and Norway all experienced severe banking crises in the early 1990s. Most people in these countries have a clear idea of what a financial crisis is. In a sense, financial stability is the absence of financial crises. A robust financial system has solid cushions that reduce the risk of problems spreading from one institution or market to other institutions or markets, or across borders. This risk constitutes a systemic risk, which is the risk of failure of the financial system. Disturbances that might develop into a systemic risk can be transmitted through financial institutions and financial markets. Robust institutions and stable markets are thus important. Robust institutions are solid institutions that enjoy general confidence. Stable markets are markets where there are no “excessive” price variations.

These are probably the most important services for the majority of customers. Several banks also offer trading in shares and fund units on the Internet. The product range and user-friendliness can be expected to increase in the period ahead. I’m sure discussions during this conference will give you an indication of future product developments. 9  BIS Review 78/2000  Nordic countries rank at the top globally in terms of access to the Internet. Nordic banks thus have a unique opportunity to serve a substantial share of customers via the Internet. This also has relevance to cross-border integration. Banks that focus on Internet distribution are perhaps particularly interested in markets where there are many Internet users. Although estimates vary, it is safe to say that the Internet will significantly reduce the banks’ variable costs. However, substantial IT investments may be necessary to keep pace with technological and market developments. In isolation, this may contribute to increasing banks’ fixed costs. As a result, the competitive environment may change. There is a danger of over-investment. Sunk costs account for a large share of overall costs. This may lead to marginal pricing as the fight for volume intensifies. This could have a negative effect on bank profitability. Many Nordic banks have a smaller customer base for distributing fixed costs than large foreign competitors. As mentioned, some banks have tried to compensate by entering into cooperation agreements. However, it might be difficult to reduce total costs without a substantial reduction in the costs of more traditional distribution.