øystein olsen : managing norway ’ s oil wealth speech by mr øystein olsen, governor of norges bank ( central bank of norway ), at the “ desemberkonferansen ” oil and gas conference, kristiansund, 3 december 2015. * * * accompanying charts can be found on the norges bank ’ s website : charts ( pdf ). please note that the text below may differ slightly from the actual presentation. in 1969, on the day before christmas eve, norway as a nation received the gift of the century : we struck oil! the ekofisk oil field was the largest subsea oil field ever discovered. the discovery of oil was the start of an extraordinary era for the norwegian economy. chart : oecd countries ’ per capita gdp in 1971 when the first oil was brought to the surface in 1971, income levels in norway were low compared with other western countries. chart : oecd countries ’ per capita gdp in 2014 the picture has reversed since then. we have gradually caught up with the wealthiest nations. measured by gdp per capita, norway now ranks at the very top. it was established at an early stage that norway ’ s oil and gas resources belong to the norwegian people. the tax system and framework conditions for the petroleum industry were designed so that the large revenues from this sector would accrue to the state. the stage was set for greater prosperity, with prospects for growth in both public and private consumption. the discovery of oil in the north sea generated a wealth of opportunity for norwegian business and industry. the extraction of oil at great sea depths would require the development of new technologies. this entailed the building up of expertise in our own country, which would secure a full order book for many years ahead – and not only off our own shore. the activities on the norwegian continental shelf would also provide a boost to other industries in norway. chart : a new market for the shipbuilding industry and the timing was perfect : economic stagnation and competition from asian countries had brought the norwegian shipping industry to the brink of a crisis. with the discovery of oil, an adaptable shipbuilding industry and the oil companies were soon on good terms. building up a new industry and spending the revenues generated also brought a new set of challenges, and in 1974 these challenges were the subject of a government white paper, report no. 25 to the storting, entitled “ the role of the petroleum industry in norwegian society ”. to provide room for the oil

is a positive development. by spreading and diversifying risk, financial markets have become more efficient and stable. deeper and more mature markets tend to be better equipped to deal with uncertainty and distress. we have also witnessed the forging of new and ever more complex financial instruments. increasing the set of available financial instruments creates more complete markets. it enhances the opportunities for households and enterprises to decouple consumption and investment from current income. investors can take on or load off risks in a more tailored fashion than before and actively manage their exposures and relocate risks to those best equipped to bear them. yet, the flip side of increased financial integration and diversification is the potential for more widespread contagion if something goes wrong. furthermore, rapid innovation and increased complexity can make it difficult to assess the real underlying risks of the new instruments. it takes time for borrowers and lenders to learn the true characteristics of new instruments. this increases the possibility that some investors – and issuers, for that matter – misunderstand the riskiness of an instrument. as a consequence, expected return may not appropriately reflect the true risk. when the true risk of an instrument starts to reveal itself, sharp corrections in the market may follow. the recent subprime crisis is one example of how new and complex instruments can give rise to global financial turmoil. problems stemming from over - optimistic price expectations for the us housing market have spread to investors and financial institutions all over the world. the wide dispersion of the financial turmoil took many of us by surprise. not to mention where problems turned up ; in german landesbanken, in large investment banks and in norwegian hydro - electricity - rich municipalities, to name but a few. ben s. bernanke ( 2006 ) : ” opening remarks ” at ” the new economic geography : effects and policy implications ”, a symposium sponsored by the federal reserve bank of kansas city, jackson hole, wyoming. alan greenspan ( 2007 ) : ” the age of turbulence ”, the penguin press, new york. one lesson from the current financial turmoil is that the expected advantages of securitisation have been somewhat exaggerated. securitisation was believed to make markets deeper and more liquid and – most importantly – to provide continuous pricing. recent events have shown that this is not necessarily true for all markets at all times. in times of distress and uncertainty, some financial market segments can cease to function. when no trading takes place, no updated prices are quoted. this represents