In November, they described the turnaround as a “heart attack”. Government authorities worldwide have taken comprehensive measures designed to improve banks’ liquidity and solidity, boost demand for goods and services and restore the smooth functioning of credit markets. In several countries, central bank benchmark rates have been set at close to zero. In Norway, a series of measures have also been implemented to mitigate the impact of the financial crisis. Norges Bank has supplied more liquidity to banks and eased the collateral requirements for loans. We have provided liquidity at longer maturities, introduced foreign exchange swaps involving both the US dollar and the euro in order to supply Norwegian krone liquidity, and loaned US dollars to Norwegian banks, which we ourselves procured from the Federal Reserve. Norges Bank’s key policy rate has been reduced by 4.25 percentage points to 1.5 per cent since 15 October 2008. To facilitate banks’ access to funding, the government has provided banks with access to liquid government securities in exchange for covered bonds issued by mortgage companies. Moreover, the government has increased loans and guarantees for Norwegian exports and raised state bank lending quotas. At the same time, Folketrygdfondet has increased its bond purchases. In order to bolster banks’ solidity, the government plans to supply risk capital to Norwegian banks through the Norwegian State Finance Fund. To restrain the decline in activity in the Norwegian economy, central government expenditure will be increased by 10 per cent this year.

Household saving is now rising rapidly from a negative level. Banks’ willingness to lend to households has stabilised after the tightening last autumn. However, they are still tightening lending to enterprises. Banks are increasing their margins and fees, and require higher equity capital levels of corporate loan applicants. At the same time, funding in the securities market is expensive. The Government Bond Fund facilitates funding primarily for enterprises with a moderate or high credit rating. As a result of extensive official measures the banks now have fairly good access to shortterm and medium-term funding. Norges Bank has supplied ample short-term liquidity to banks. Loans with longer maturities have been widely used, and an increasing number of banks are participating in the credit swap arrangement. We see here an overview of various banks’ and mortgage companies’ use of this arrangement as a percentage of their total assets. So far, there are 15 banks and mortgage companies participating in the arrangement. Several participants report that the credit swap arrangement is a good source of funding in today’s market. The government receives, which is reasonable, compensation for making Treasury notes available. The rate has been in the order of a half per cent. With a large volume of Treasury notes in circulation, we see the possibility of the formation of an interbank market for loans in NOK, where government securities are used as collateral. In the event, this would provide the Norwegian money market with greater insulation from the shifting weather conditions in the US dollar market.