spanish style rule - based dynamic provisioning. this latter stabilizer seems unfortunately not likely to be included in the reform package. it is very important that these kind of automatic stabilizers are built into the new regulatory framework. it is important that they are rule - based. leaving stabilization to the discretion of regulators will always give more uncertain results. rules are often preferable even if they have to be crude and suboptimal. norway is part of the european economic area, and eu regulations are thus applicable in this country. within the remaining national discretion, norwegian regulations are laid down by the ministry of finance, and implemented by the financial supervisory authority. but norges bank aims to be an active advisor on these issues. our work on macroprudential supervision provides insights that we wish to share with other supervisory authorities. the second component of macroprudential policies consists of short and medium term measures to alleviate the effects from the procyclical behaviour of financial institutions. there are two macroprudential aspect of procyclicality. it is the common exposures of a group of financial institutions. and it is the interconnectivity of financial institutions through trading and credit relationships. common exposures are probably the most important of these interdependencies for crisis generation. individual institutions can look perfectly healthy even when vulnerabilities are building up on the systemic level. the prime example of this phenomenon is naturally lending stimulating a price bubble in the property market. developing time - varying macroprudential policies is not straightforward. the interest rate policy targets the inflation rate, and cannot always be set as would be appropriate for asset prices. there might be conflicting targets. we should thus be looking for new instruments. as you are certainly aware, most of the macroprudential policy instruments that have been proposed are the same as those already being used for microprudential purposes. examples are loan - to - value or loan - to - income limitations, and add - ons to the risk weights on relevant bank exposures. the latter instrument is being used in new zealand, where supervisors have recently introduced a 15 percentage point risk weight add - on to property lending. since these instruments are also microprudential, they are all in the domain of the financial supervisory authority and are needed there. but the macroprudential objective is different from the microprudential, and may call for different calibration of the instruments. the implementation may for practical reasons

we are falling short in some areas, particularly in parts of our transportation system – both private and public. many of you have no doubt felt the frustration of moving around our cities. in my own case, when i am experiencing this frustration, i sometimes feel the economist side of my brain turn on. when this happens i can ’ t help but think that surely there are investments in transport infrastructure that would yield a social rate of return greater than the cost of financing. at other times, i think that better use could be made of the existing infrastructure with a different pricing regime. i suspect that, on both scores, the economist part of my brain is right. the benefits of investment in transportation infrastructure are well known. 7 some of these are quite obvious, while others are more difficult to see, although no less important. among the more obvious benefits is a reduction in travel times and costs for both people and goods. there can also be favourable social impacts through reducing travel stress and increasing the connectedness of communities. and there are environmental benefits as well. one of the less obvious benefits is what economists sometimes call agglomeration spillovers. effective transportation networks deepen markets. they bring consumers closer to more businesses, and they bring workers in contact with more opportunities. these deeper markets and connections promote competition. they promote greater specialisation by both firms and workers. and they promote innovation and a more dynamic economy. while the internet has some of these same effects, person - to - person contact remains an essential part of business, education and innovation. poor transportation makes this contact difficult and hurts our national productivity. another less obvious effect of transportation systems is on the cost of housing. there are many factors that contribute to the cost of housing, but among these is the nature of a city ’ s transportation system. when housing prices are high, it is largely because land prices are high. and, land prices are high when there is a “ shortage ” of well - located land. we cannot do much about the physical supply of land, but investment in transportation infrastructure – by making it easier to move around the city – can increase the supply of “ well - located ” land. and when supply increases, prices adjust. this means that underinvestment in transportation networks tends to put upward pressure on housing costs. 8 given these various effects, my own view is that there are significant opportunities for additional investment in transportation infrastructure and for using the existing infrastructure for example, see venables, aj ( 2007 )