kommunalbanken or municipalities. because of the liquidity premium, however, kommunalbanken and the municipalities would benefit from a more developed and more liquid bond market in norway. i can find several reasons why the norwegian economy would benefit from a larger portion of credit being channelled through the debt securities market. • a well developed debt securities market : - enhanced risk management - continuous pricing of risk reduces the possibility of shocks - provides the financial system with two legs to stand on sg kommunalbanken, 30. august 2002 a ) enhanced risk management bonds and short - term issues are traded in the secondary market. more participants are thereby given the opportunity to invest in assets that have largely been reserved for financial institutions. banks are also provided with increased possibilities to diversify the risk in their loan portfolios across different sectors and regions. all in all, this contributes to spreading the credit risk linked to the loans. when risk is diversified, the financial system is less vulnerable in the face of financial turbulence. b ) continuous pricing of risk reduces the possibility of shocks loans from financial institutions and securities debt differ widely in terms of the degree of transparency in credit rating and pricing. the credit rating in financial institutions must be looked upon as internal company information. loans provided by banks and financial institutions are far less liquid than negotiable securities and the price will generally not change as a result of new information about the borrower. on the other hand, securities markets are subject to transparency and information requirements. participants ’ credit ratings are continuously reflected in the transparent pricing process in the market. the stability in our financial system is strengthened when market operators ’ assessment of the correct value is reflected transparently and continuously in prices. a precondition is of course that the information that companies are obliged to provide is correct. economic shocks will also be more easily absorbed, even though considerable price changes may have substantial wealth effects. because banks lend at relatively fixed rates, financial institutions must be able to adjust volumes when new information is available. this, for example, can be done by refraining from rolling over short - term loans. the spillover effects of unexpected events may therefore be more substantial for bank loans than for securities debt. c ) a well developed debt securities market provides the financial system with two legs to stand on financial crises are normally related to the banking system. the crises have partly been the result of a very high concentration of risk in banks. in crisis situations, we have seen that

financial institutions and securities markets can be complementary and prevent a credit crunch. one example is the crisis that followed the collapse of the us hedge fund ltcm in 1998. for a period during the crisis, there were substantial problems in the private bond market in the us. financial institutions increased lending and prevented a more extensive credit crunch. conversely, we have seen that when there have been problems in the banking sector, securities markets have replaced bank loans. changes are now taking place, which i think will contribute to strengthening the norwegian bond market. proposed legislation changes will for example provide for the sale of housing loans to a separate entity that finances the purchase by issuing bonds. the proposed legislative amendments would permit a wider range of issues in the bond market. in general, a larger number of issuers and investors would enhance liquidity in the secondary bond market. this could also directly or indirectly strengthen banks ’ position. funding of pensions the savings market in various countries 31. 12. 2000. as a share of gdp 2. 5 pension funds securities funds life insurance 1. 5 0. 5 um mark land ance many eland italy lands rw ay tugal spain eden rland lgi r fr ger ir fin sw itze no por be den the sw ne uk source : oecd sg kommunalbanken, 30. august 2002 the organisation of the pension system in norway will also be of considerable importance to the local government sector as a big employer. the securities market will also be influenced by the pension system norway will have in the future. life insurance companies and pension funds are major operators in the norwegian securities market. • design of a new pension system : - " pay - as - you - go " - fund - based schemes : – defined contribution – defined benefit • who should bear the risk? sg kommunalbanken, 30. august 2002 in norway, the bulk of pensions are funded through the pay - as - you - go system. it is the taxation of current income that pays for the national insurance scheme ’ s current pension benefits. for the vast majority of western countries, estimates show that substantial tax increases will be needed to cope with the ageing of the population. the alternative to the pay - as - you - go system is to build up funds prior to the payment of pensions. these funds can consist of different assets such as stocks and bonds. more fund - based schemes will generate a positive stimulus to the norwegian securities market, even if an appropriate