The capital buffer will hence contribute to enhancing economic stability. Later this year, Norges Bank will publish analyses and provide advice on the size of the countercyclical buffer in conjunction with its monetary policy analyses. The aim is to ensure that the analytical basis is consistent with the formulation of monetary policy. The countercyclical buffer will be one of many factors that influence economic prospects, banking sector behaviour and lending rates facing households and businesses. If risk builds up in the banking system, the buffer requirement will be increased. In a downturn, the buffer requirement can be lowered. Norges Bank will assume that the countercyclical buffer comes in addition to the other core capital requirements, which are set at 9 percent today. During the phase-in period, banks should be prepared for a gradual increase in equity capital requirements. The government authorities are responsible for drawing up the laws and regulations governing the financial industry. This also applies to the decisions relating to the countercyclical buffer. The countercyclical buffer should be determined on the basis of an assessment of overall risk in the banking system. The authorities can assume that the response pattern of monetary policy is stable. The Norwegian economy is also vulnerable Structural adjustments in the business sector are the key to economic progress. Over the past 40 years, the oil and gas industry has been an engine of innovation and growth in Norway. In the beginning phases of the Norwegian oil age, the impulses to other economic sectors were modest.

Over the years, we have developed an internationally competitive petroleum supply industry of considerable scope. While the companies operating on the Norwegian continental shelf had to import virtually all their equipment in the 1970s, the import share has now dropped to just below 40 percent. The Norwegian engineering industry has flourished. The supply industry has become a major export industry. Almost two-thirds of total Norwegian exports are now linked to the petroleum industry. Chart 10: A manufacturing sector divided Vigorous activity in the oil and gas industry also helped Norwegian manufacturing fare better than manufacturing in other OECD countries during the financial crisis. The petroleum industry is a buffer against the current downturn in advanced economies. In that respect, the Norwegian economy has become more robust. The flip side of the coin is that our economic future is becoming increasingly dependent on oil and gas activities. The substantial petroleum revenues and the spillover effects from oil and gas production are reflected in the  BIS central bankers’ speeches  5  labour market and are driving up house prices and debt. In those respects, the Norwegian economy is also vulnerable. In the mid-1980s, the Norwegian economy was shaken by a sharp and long-lasting fall in oil prices. Today’s situation is quite different. Oil prices are persistently high, primarily reflecting the emergence of newly industrialised countries. But it is risky business to take today’s oil price levels for granted. New energy production technologies are being developed. Climate challenges will not disappear.