. because of particular features of the industry structure in norway, it took time for the full impact of the international downturn to reach our economy. in the meantime, an expansionary monetary and fiscal policy had begun to take effect. against the background of relatively favourable macroeconomic conditions, the vulnerability related to a high household debt burden and elevated house prices never translated into higher losses for banks. in addition, a number of targeted measures were implemented to mitigate the impact of tighter market funding. long - term f - loans were provided for 108 banks, and 20 banks and 4 mortgage companies were supported through the swap facility. in addition, capital was supplied to a number of banks through the norwegian state finance fund. these measures were not without financial risk for the norwegian authorities when they were introduced, although it does not appear that the measures will ultimately prove costly. on the whole, the norwegian economy fared well through the financial crisis. nonetheless, the norwegian economy and the norwegian financial system were vulnerable in a number of areas. the continued existence of this vulnerability gives cause for concern. bis central bankers ’ speeches house prices are now rising rapidly again and have already passed the previous peak levels. household debt growth in norway has edged down, but the level of debt shows no signs of falling. overall indebtedness in the economy is also higher than at the outbreak of the financial crisis and the proportion of market funding is still high. there is therefore every reason to keep a close eye on systemic risk going forward. systemic risk and households in our view monitoring developments in the household sector and the housing market is particularly important. there are many reasons for this. a good half of norwegian banks ’ loans are extended to households. the bulk of the loans is secured on the dwelling. the loans are backed by collateral whose value swings considerably, notably dwellings. longs periods of upswing in the housing market are often followed by periods of decline. therefore, there is no guarantee that the collateral value will cover the loan in the event of default. in addition, variable rate mortgages account for the bulk of housing loans in norway, which means that changes in short - term interest rates have a substantial impact on household income. in spite of this, the direct losses associated with loans to households are seldom large in norway. even during the banking crisis a good 20 years ago, losses were limited. however, historically low losses are no guarantee of low losses in the future. the household debt to income ratio is now clearly higher than prior

##ly regulatory requirements with internal risk measurement methodologies. it is important to recognize that the application of the new accord is principally intended for large international banks, which are complex institutions usually operating in developed countries. therefore, basel ii has often been questioned about its implications and appropriateness for banking in emerging market economies, and it is on this point that i would like to focus my remarks. in principle, the three - pillar structure of the new accord provides more precise directions to regulators to strengthen bank supervision and incentives to banks to become more sophisticated in risk management. implementation of basel ii eliminates “ one size fits all ” methodology to assess risks and offers instead a wide range of methods to evaluate risks based more on failure likelihood. but the supervisory authorities in several emerging markets and many developing economies are concerned that basel ii puts a challenge they cannot meet. probably our greatest concern relates to the need of the standardized approach to rely on external rating agencies for calculating minimum capital requirements. currently domestic rating agencies are totally absent in albania and not well developed as in many other non - oecd countries. on the other hand, in most of our economies many small enterprises cannot afford to be clients of international rating agencies. since borrowers unrated from rating agencies will be assigned a 100 % risk according to basel ii, initially most domestic credits may end up under this 100 % category. this could reduce risk sensitivity of the new system brining it close or similar to that of basel i. on the other hand, albanian banks hold a significant share of government treasury bills and notes. actually, under basel i to this exposure of the banking system denominated in local currency is assigned 0 % risk independently whether credit risk of the sovereign debt is rated or not. under basel ii, standardized approach, it is possible that sovereign debt is assigned a risk weight between 0 % to 150 %, most likely 100 % since it falls under unrated category. this means that banking system in albania may have to increase capital allocation to comply with the minimum level of the capital adequacy ratio. an important intention of basel ii is to strengthen market discipline by developing a set of information disclosure requirements. in our countries there is plenty of room for improvement in this respect to allow market participants to assess key information on risk exposure, risk assessment process, and hence capital adequacy. this is important since it increases public pressure on banks to have a better performance in assessing and monitoring risk. however, in short run information disclosure might also have some