Market prices suggest the implied subsidy has been substantially reduced as the expectation of public bail-outs dies away.7 However, we have more to do in order to make cross-border resolution the only expected outcome in the event an institution fails. The TLAC standards must be finalised next year and then implemented fully. Resolution plans for individual firms must be finalised and legal and operational impediments removed. Arrangements for the funding of firms in resolution must be put in place. Legislation must be enacted to allow regulators to give effect to the resolution actions of authorities in other jurisdictions. And the solution of the too big to fail problem in banks must be broadened to include all systemic institutions, including insurers and critical financial market infrastructures, through designation, more intensive supervision and standards for loss absorbing capacity. We recognise that our success can never be absolute. Specifically, we can’t expect to insulate fully all institutions from all external shocks, however large. But we can change the system so that systemically important institutions, their shareholders and their creditors bear the cost of their own actions and the risks they take. The future of reform With a safer, simpler and fairer system in place, the FSB can begin to look ahead to how, collectively, we will engage in the next phase of reform and regulate and supervise the global system. 6  Clear principles and a detailed indicative term sheet covering the necessary amount, type and location of loss absorbing capacity are now being consulted on. See FSB (2014a).

This is probably due to the modernisation of the functioning of the economy through the 1980s and 1990s, which resulted in more efficient markets. In addition, growth in labour productivity reflected a marked fall in sickness absence in 2004. The outlook for the Norwegian economy Monetary policy influences the economy with a lag. Norges Bank therefore has to be forward-looking in its interest rate setting. Developments in prices and capacity utilisation in Norway are influenced by both domestic conditions and economic developments in other countries. Since the end of June, global money and credit markets have been characterised by sharp fluctuations, liquidity shortages and reduced risk willingness. The turbulence stems from problems in the US mortgage market. Defaults on subprime mortgages in the US began in the second half of 2006. Securities portfolios had been developed around these mortgages. Uncertainty arose among banks and investors that were directly or indirectly exposed to losses on subprime mortgages. Expected losses on mortgage-backed securities rose. Investors became gradually less willing to take risk. The premium on corporate securities increased markedly. The credit premium has been highest on the lowest rated securities, i.e. securities backed by subprime loans. Another effect of the turbulence is credit migration, i.e. that the rating of securities has changed as the consequences of the unrest have become apparent. For example, a security that had an AAA rating, may now be rated AA or lower. The turmoil spread rapidly to other parts of the financial markets.