If oil prices were to fall again, a number of off-shore investment projects would become unprofitable, with considerable spillover effects on other sectors of our economy. Unemployment in Norway would probably rise. We cannot eliminate that risk. Curbing the exploitation of oil and gas resources is not a feasible alternative. The abiding question is rather how to limit the vulnerability associated with increased oil dependence. The fiscal rule for petroleum revenue spending is an important buffer. The petroleum fund mechanism and moderate and predictable spending of petroleum revenues over the central government budget contributes to enhancing economic stability. Reserves accumulated in the Government Pension Fund Global provide fiscal leeway in the event of an economic setback, as observed in 2008 and 2009. By limiting petroleum revenue spending to the expected real return on the Fund, we ensure that our petroleum wealth will benefit future generations. A balanced approach to revenue spending will allow future generations to benefit from what is spent on public investments domestically. Chart 8  8  BIS central bankers’ speeches  The spending of petroleum revenues also has another facet. It increases the cost of Norwegian labour. During upturns Norwegian companies have fared well, in spite of rapidly rising costs, thanks to efficiency gains and rising producer prices. Some other countries in Europe allowed costs to rise at broadly the same pace over a number of years. Now these countries are in a downturn with a high level of spare capacity, and with a need to improve competitiveness.

Secondly, while there is now greater certainty than some years back about regulatory and supervisory capital requirements, some factors continue to put pressure on capital ratios. These include the end of phase-in periods, which have enabled certain requirements, such as the capital conservation buffer, to come into force gradually over the course of several years. Thirdly, regarding resolution regulations, compliance with loss absorption-related minimum requirements for own funds and eligible liabilities (MREL) poses a far from negligible challenge, especially for that segment of banks that finds it most difficult to tap the markets for funds. Part of the challenge lies in the low profitability of banking activity and in the high cost of issuing eligible liabilities. In this scenario, it is essential that Spanish institutions pay due attention to the organic generation of capital in the design of their strategy and contemplate the steps needed to be well-prepared for the future regulatory scenario and to improve their relative position in the European banking industry. Another key element in the design of Spanish banks’ strategies should be to persevere with the efforts made to date to reduce non-productive assets. Having regard to the figures for business in Spain, the resident private sector’s nonperforming loans have fallen by 60% from their end-2013 peak. At that time, they accounted for close to € billion. This figure was practically € billion as at June 2018. In terms of the NPL ratio, the early-2014 peak was 13.9%. As at June 2018, the figure stood at 6.4%.