jan f qvigstad : understanding macroprudential regulation introductory remarks by mr jan f qvigstad, deputy governor of norges bank ( central bank of norway ), at the workshop on “ understanding macroprudential regulation ”, organised by norges bank, oslo, 29 november 2012. * * * dear all, it is a pleasure to welcome you to norges bank for this workshop on understanding macroprudential regulation. the topic of the workshop is timely ; authorities in all parts of the world are now actively debating macroprudential policy. academic research provides a necessary foundation, both for the design and the implementation of such regulations. during my years of service here at the central bank, and also some years at the treasury, i have had my fair share of dealings with banking and financial crises in norway. in the 1990s, norway was hit by a severe banking crisis. three of the four largest banks failed. required capital injections were more than three and a half per cent of gdp. this is substantially more than the percentage share that euro area banks currently need to recapitalise. ever since the norwegian banking crisis in the early 1990s, our banking industry has been regulated more strictly than banks in comparable countries. for instance, bank capital definitions have been tighter, while packaging loans into complex instruments was in practice not permitted until 2007. financial supervision has also been rather strict. as a result, the norwegian financial system only had limited exposure to the subprime mortgage market – notwithstanding some municipalities in the northern part of norway that got involved, with a less than full understanding of inherent risks. our banks were therefore relatively unaffected by the recent crisis when it comes to credit risk. the downturn that our economy experienced in 2009 was modest in relation to other countries – but this is of course also due to the composition of our production and exports, with oil accounting for a large share. more than two decades ago, in the early stages of the norwegian banking crisis, norges bank provided a large liquidity loan to a savings bank. the bank, however, soon became insolvent. we learnt how fast illiquidity can turn into insolvency. at the time, the bank was rescued partly by norges bank writing off its loan. this incident showed that it was important to clarify the division of responsibilities between the central bank and the fiscal authorities. the government bank insurance fund was established, which would be able to extend loans and inject capital into

least in the basel committee, as an agreement on its design and calibration has already been reached. the short - term ratio will not come into force immediately. it will be phased in from 2015 – when a level of 60 % will be demanded – to 2019, when it will reach 100 %. nonetheless, this timetable may be speeded up at the discretion of the different national authorities. the banco de espana has backed the setting of the short - term liquidity ratio, and the amendments to it, which have softened the original framework proposed. nor does it intend to accelerate the implementation timetable, although we believe that banks should strive to meet it as soon as possible. as regards reporting and transparency obligations, we consider they should be obligatory for internationally active banks, but that they could be simplified for others. basel iii also envisages the implementation of a long - term liquidity ratio so that banks maintain stable funding profiles, tailored to their assets and activities. in that way, banks ’ dependence on short - term funding markets is structurally reduced, since that proved to be a very disruptive weakness in the 2008 financial crisis. the design of this ratio is at a relatively early stage, as the preliminary proposal published in 2010 is being revised. it is expected that, early next year, a consultative document will be available, and that the regulations will have been finalised before 2015, with this entailing a simplification of the original rule. further, it will be necessary to agree on certain aspects of relevance for spanish banks, such as, in relation to liquidity requirements, the treatment of high - quality mortgages or matters pertaining to asset encumbrance. this ratio is expected to come into force in 2018, although in the case of the eu, the commission will have to submit a legislative proposal before 2016. i shall now move on to certain elements relating to the review of capital requirements. this is part of a broader project : to attempt to ensure that the benefits of risk - adjusted regulations, such as basel iii, are not achieved at the cost of introducing excessively complex regulations which, in addition to other problems, yield results that cannot be compared from one bank to another. the banco de espana is in favour of simplifying the current regulations, striking a balance between simplicity, comparability and risk - sensitivity. in this respect, it views favourably the transparency exercise conducted by the basel committee on the comparability of asset risk weights. the results of this