instability and problems in the financial system. we have observed this phenomenon both in norway and in other countries. when optimism turns to pessimism, the financial system can come under pressure. however, it is not possible to determine with any certainty the value of debt, asset prices and investment that may constitute an unacceptable risk in this context. the pace of growth in household borrowing cannot be sustained over time. it would probably be wise for both borrowers and lenders to acknowledge that the root of subsequent problems, and demanding corrections, is often to be found during such periods. thank you for your attention. 6 / 6

any lcbo adopts the advanced approach – and i believe some intend to – it seems likely the market will pressure all the large banks to adopt it or be judged as having something to hide or having standards not quite up to snuff. there will also be direct economic incentives to adopt irb approaches. the effective average risk weight for a bank as a whole should decline with the more sophisticated approaches depending on the extent of capital arbitrage already accomplished. if true, such banks would achieve lower total regulatory capital charges and, consequently, a higher reported risk - weighted capital ratio. at the same time, given the different risk profiles at individual banks, capital requirements almost certainly would vary more widely under the new risk - based capital ratios than under today's measure. however, banks would then presumably respond to changes in their risk - based capital ratios. for example, a bank with a relatively low risk portfolio would find that its risk - weighted capital ratio increased because its risk - weighted exposures had declined. it would, as a result, presumably reduce its capital, or increase its leverage, or even increase its risk exposure. a bank with a higher level of risk - weighted exposures resulting in diminished risk - based capital ratios would presumably do the opposite : raise more capital, or reduce its leverage, or reduce its risk exposures. at the end of this adjustment process, we might again – for either competitive reasons or because of the incentives from the prompt - corrective - action structure – have a relatively tight configuration of risk - weighted capital ratios, especially at lcbos, but riskier banks would be holding more absolute capital to support their risks. indeed, that is the whole purpose of the exercise. in contemplating your own bank ’ s effort to prepare for adoption of the irb approach, i would suggest that a pivotal step is warehousing your own institution ’ s credit - loss experience. to be candid, the scarcity of data on losses has been a major stumbling block in the development of the irb approach. let me urge all of you to follow the example of some of you and move quickly in this direction. data storage is extraordinarily cheap these days, but we all know that extracting and organizing the right data from existing systems is very expensive and often painful. nonetheless, the contribution of better data to sound risk management will undoubtedly prove to be extremely valuable. as you develop your own plans, let me emphasize that supervisors will be looking for a committed and