a challenge for institutions, auditors and regulators trying to mark assets and liabilities to the market. this has amplified the impact on the financial sector of the defaults on subprime mortgages. in the absence of pricing, the balance sheets of financial institutions holding such instruments became opaque. uncertainty about the potential loss of other banks and about their own future liquidity needs has made banks reluctant to lend to each other. to the surprise and dismay of many, the extremely efficient and well - functioning money market ground to halt. central banks had to step in and provide liquidity to the banking system. when money markets go into gridlock, it is appropriate for central banks to ease banks ’ liquidity problems, but they should do so at a price that maintains the incentive to restore the smooth functioning of the market. losses and evaporating liquidity then hit the capital base of many financial institutions. so far, the most severe problems have been local or national, like the british bank northern rock and the norwegian brokerage house terra securities. these problems were resolved by means of national remedies. but with increased integration and the emergence of crossborder banks, sooner or later we are bound to encounter a problem in a bank or financial institution that may be systemically important in several countries ( but not necessarily in the home country ). the existence of cross - border institutions makes crisis management more challenging, as it necessitates close cooperation between central banks, supervisory authorities and finance ministries in different countries. with one global financial market, one could wish there were one supervisory authority, one liquidity provider and one public treasury with a common script for handling crisis situations. we are far from this point. at the recent davos world economic forum the head of the bis, malcolm knight, stated that the “ major challenge ” for regulators was “ the balkanisation of regulation – fragmented across market segments, across national jurisdictions and yet we want to have a global financial system. ” 3 a single financial market is one of the eu ’ s objectives. against the background of growing integration, crisis management has been moved up on the agenda within the eu. norway is participating in extensive discussions on this topic under the auspices of the eea agreement and in separate talks with the other nordic countries. as an example, the nordic central banks have agreed on a memorandum of understanding on crisis management that provides guidelines for information sharing and gathering, coordination of decision - making and so on. the surprisingly wide dispersion of the

losses should be borne by investors and financial institutions themselves to the fullest extent possible. some might argue that i am behind the curve and that i should rather be discussing the breakdown of the global financial system. george soros has argued that “ this is not a normal crisis, but an end of an era. ” 17 i do not subscribe to this view, though i admit i might be proven wrong. i would rather regard the present turmoil as evidence of the self - correcting properties of our system. yes, corrections can be costly. thus, we should aim at organising the system to be even more resilient and well - functioning. i remain convinced, however, that we would be wise to continue to base our economic system on open borders, competition and increasingly deeper and more integrated markets for goods, services, capital and labour. thank you for your attention! financial times, january 25, 2008