The recent crisis has revealed how the real world deviates significantly from the assumption of perfect markets: information is asymmetrical, risk can be mispriced for sustained periods, and economic decisions are frequently guided by complex behavioural considerations rather than rational calculations. 7. Second, the cost of failure in financial systems is much higher than in other markets. The risk of destructive transmission is far greater with financial networks spanning many segments of the real economy. When companies fail, capital is reallocated to more productive uses in a process of creative destruction. In contrast, when financial institutions fail, capital is destroyed in a process that can feed on itself and lead to systemic instability. 8. Robert Shiller from Yale University, one of the few economists who predicted the crisis, argues that “we have to distance ourselves from the presumption that financial markets always work well and that price changes always reflect genuine information”. It is this misguided belief that prices always reflect fundamentals, that leads to asset bubbles. Government regulation is therefore imperative. Effective regulation and supervision of the financial sector is necessary to promote prudent behaviour and sound risk management and minimise the risk of financial shocks. 9. But we should guard against drawing the wrong lesson from the crisis: it is not about more regulation and less markets. The new financial landscape paradoxically requires both – better regulation but also better functioning markets. BIS central bankers’ speeches  1  10. Market competition remains the best way to promote innovation and create prosperity.

That is in line with the intention in our advice from 2017 and will contribute to reducing the exposure of the state’s wealth to oil price risk. 1/2  BIS central bankers' speeches  The report to the Storting on the Government Pension Fund provides for among other things the possibility of investing in unlisted renewable energy infrastructure within the environmental mandates. As we have indicated previously, Norges Bank will approach investment opportunities and build expertise gradually. Investments in unlisted infrastructure will be a topic for the Executive Board’s work on the new strategy plan to apply from 2020. On 10 April 2015, the Central Bank Law Commission was appointed. Precisely four years later, the Government put forth a proposal on a new central bank act. At that time, the Storting had already endorsed retaining Norges Bank as the operational manager of the GPFG. For Norges Bank, the proposal on a new central bank act entails a number of changes, such as increasing the capacity of Norges Bank’s Executive Board in the area of capital management. Norges Bank has already made considerable strides in adapting the internal organisation to the changes ensuing from the new central bank act. The main exposures that are decisive for the GPFG’s long-term performance are decided by the Ministry of Finance and anchored in the Storting. This year’s report to the Storting on the GPFG includes several measures to further develop the investment strategy. But the objective remains firm: The highest possible return at an acceptable risk.