ratios were at the outset fairly high, with high quality tier 1 capital, and norway had a bank guarantee fund financed, albeit only just, by capital paid in by banks. norges bank also holds ample foreign exchange reserves and was able to supply foreign exchange to banks. norwegian banks felt the impact of the global financial crisis primarily as a result of reduced access to funding. over time, banks have increasingly relied on fairly short - term funding in global markets to finance their lending. this is the main reason why norwegian banks encountered problems when funding from foreign sources dried up in 2008. for norwegian banks, the financial crisis essentially proved to be a funding and liquidity crisis. new and increased equity capital and liquidity requirements for banks can promote stability in the financial system. the requirements should probably be more stringent in norway than the minimum requirement that is likely to be agreed internationally. it is also important to cooperate with the other nordic countries to avoid a situation where more lightly regulated banks aggressively market loans in norway. the global financial crisis has shown that credit cycles and property market bubbles that burst represent one of the greatest challenges to economic policy. the experience of many countries over several decades has shown that house prices and residential mortgage lending usually rise prior to the outbreak of a banking crisis. 1 in norway, interest rate expenses can be deducted from taxable income, while capital gains on dwellings and the benefit of home ownership are not taxed. housing is taxed as an asset, but not at its market value. high tax subsidisation of home ownership and a large proportion of floating - rate loans contribute to considerable fluctuations in house prices in norway. furthermore, the rise in house prices over the past two decades has been high compared with countries where house price bubbles have now burst. high house prices and substantial household debt add to the economy ’ s vulnerability. in march, finanstilsynet ( financial supervisory authority of norway ) issued new guidelines for prudent residential mortgage lending. the guidelines may have a somewhat dampening impact on the rise in debt and house prices. the global financial crisis has revealed weaknesses in the financial system. regulation of financial institutions should seek to limit risk not only in individual banks, but also in the financial system as a whole. risk is amplified by the interaction between financial institutions. today, we can see that the crisis was amplified by the very surprise over the extent to which financial markets are interwoven. losses on subprime mortgages in the us shattered confidence in

by tightening policy, we also contribute to a stronger krone than would otherwise have been the case. a stronger krone reduces prices for imported goods. the inflationary impulses that triggered the surge in inflation are receding. energy prices have fallen. global inflation is coming down. global trade in goods is flowing as normal, and freight rates have returned to pre - pandemic levels. this will gradually curb inflation in norway too. nevertheless, we believe it will take time for inflation to return to target. slide 6 : wage growth has accelerated one reason for this is that labour costs have shown a marked rise. wage growth this year is set to be the highest in 15 years. still, the pay increases are not large compared with the rise in living costs many are facing. according to our september projections, it appears that purchasing power will weaken this year too. 3 / 6 bis - central bankers'speeches when we make projections for wage growth, we use various sources of information. our projections of wage growth are based on the norwegian model of wage determination and quantified economic relationships. in addition, our wage projections are based on the responses we receive when we ask the social partners, among others, what their wage growth expectations are for this year and next. these expectations have proved to be fairly closely in line with actual wage growth. as this assembly is well aware, the norwegian wage determination process is characterised by a high degree of coordination. manufacturing negotiates first and agrees on wage increases based on firms'ability to pay, which defines the wage norm that serves as a reference for subsequent settlements. the historical relationships show that firms'ability to pay is one important factor explaining wage growth. price expectations, as estimated by the norwegian technical calculation committee for wage settlements, are also important. in addition, wage growth is influenced by labour market tightness. when unemployment is low and employers face skills shortages, wages tend to rise faster. coordinated wage determination, where the parties to wage settlements emphasise high employment, reduces the risk of a wage - price spiral. as a result, we need to raise the policy rate to a lesser extent than would otherwise have been necessary in the face of the cost shock that has hit the norwegian economy. the norwegian wage determination system thus makes it easier for us to succeed in reducing inflation without many people losing their jobs. but wage determination alone cannot ensure that inflation is reduced. that is a task for monetary policy. slide 7 : we have a floating exchange rate norges bank