Before the settlement is finalised, Norges Bank verifies whether the banks have sufficient funds in their accounts in Norges Bank. The introduction of collateral requirements for banks’ loans has lowered the risk assumed by Norges Bank. Supervision has been substantially strengthened since the banking crisis. The Banking, Insurance and Securities Commission’s resources have been increased. Greater emphasis is placed on on-site supervision. The methodology for document-based supervision has been improved. Internal control routines have been enhanced. International surveillance cooperation has also been strengthened. In addition, the authorities have become more aware of the importance of monitoring the financial system. The aim is to identify emerging tensions and possible sources of system failure at an early stage. 4. Prevention work in Norges Bank  The work undertaken by Norges Bank to maintain financial stability can be divided into three areas of activity: •  continuous monitoring of factors that affect financial stability;  •  work to reduce the risk in payment systems and increase their robustness; and  •  assess the effects of monetary policy and economic policy in general. Surveillance Surveillance primarily consists of analyses of the relationship between macroeconomic developments and the financial strength of financial institutions. Norges Bank’s analyses are presented in semi-annual reports on financial stability, called “Financial Sector Outlook”. Experience shows that effective surveillance requires more than monitoring the earnings and capital adequacy of banks and other financial institutions. Developments in other markets must also be monitored.

In his annual address in 1988 the then governor of the central bank formulated the role as follows: “However, should financial institutions find themselves in a position that could affect general confidence in the credit market, Norges Bank - cognisant of its responsibility as the central bank - is prepared to take such measures as are necessary to bolster market confidence in our financial system.” During the banking crisis the division of responsibility between the government authorities and Norges Bank was clarified. If “necessary measures” prove to be solvency support, the guarantee funds, and as a last resort the government, shall provide such support. Norges Bank will of course play an active role in any situation where financial stability may be threatened. This role must be exercised in close cooperation with the Banking, Insurance and Securities Commission and the Ministry of Finance. 7. The current situation  Before I sum up, I would like to make some brief comments on today’s risk outlook. During the turbulence in the autumn of 1998, investors fled to liquid and safe investments. The interest rate differential between safe and risky instruments widened markedly. The difference is still wide. This reflects uncertainty among investors. The increase in interest rates in Norway in the autumn of 1998 led to a contraction in credit growth that was far too high at the time, particularly in the corporate sector. Investment started to fall. Even if debt servicing costs increased in the short run, the risk of even higher debt in the future was reduced.