We would then have had to reduce the interest rate sharply this summer. This would have amplified the pressures in the Norwegian economy, which are so clearly reflected in wage developments and household credit demand. It is more than likely that this would have required substantial increases in the interest rate in a year to eighteen months. Strict inflation targeting of this type would thus have resulted in more pronounced fluctuations in the interest rate and in aggregate demand and production. Information obtained via the regional network established last autumn was used when preparing the October Inflation Report. We will have six rounds of talks each year with business and community representatives concerning financial developments in their enterprises and industries. There will be a total of about 200 visits in each round. We have divided the country into 7 regions and established links with regional research institutions in six of them. These institutions will hold meetings with the representatives on behalf of Norges Bank. The private service sector is by far the largest in the Central Norway region, accounting for over 40 percent of total employment in the region. The private service and retail sales sectors together account for over half of the number employed, while a good tenth are employed in manufacturing. The share of manufacturing industry that is exposed to international competition in Trøndelag is relatively limited. Companies in the Central Norway region report small changes in prices and costs, except for export companies.

The global banks play a major role as providers of liquidity in home, host and international markets. Even in emerging markets, debt and equity market liquidity often relies on active participation by global banks. Enhanced regulatory requirements should therefore be targeted, risk appropriate, and applied in a non-discriminatory way on banks posing the same level of risk, be they domestic or global banks. The safety buffers for global banks, which clearly needs to be enhanced, cannot therefore rest too heavily on premiums in up-front capital, liquidity and other regulatory requirements. We should strengthen supervision and crisis resolution capabilities to complement and avoid an over-reliance on regulation. Strengthen continuous supervision rather than rely excessively on upfront regulatory requirements. Effective international coordination among supervisors requires more open and transparent sharing of information between home and host supervisors – home supervisors will want to be well informed about the requirements imposed on significant overseas subsidiaries, and host supervisors need to be kept apprised of developments at the parent bank. Cross-border supervisory colleges and crisis management groups are therefore critical, and they have to be strengthened to ensure that  2  BIS central bankers’ speeches  national policy measures are globally consistent and mutually supportive. So that is the first risk, of going too far with respect to global banks such that the global financial system is impaired. The second risk is that of the fragmenting or balkanising finance. We are already seeing signs of this, and most especially in the wake of the European crisis.