will give you an indication of future product developments. nordic countries rank at the top globally in terms of access to the internet. nordic banks thus have a unique opportunity to serve a substantial share of customers via the internet. this also has relevance to cross - border integration. banks that focus on internet distribution are perhaps particularly interested in markets where there are many internet users. although estimates vary, it is safe to say that the internet will significantly reduce the banks ’ variable costs. however, substantial it investments may be necessary to keep pace with technological and market developments. in isolation, this may contribute to increasing banks ’ fixed costs. as a result, the competitive environment may change. there is a danger of over - investment. sunk costs account for a large share of overall costs. this may lead to marginal pricing as the fight for volume intensifies. this could have a negative effect on bank profitability. many nordic banks have a smaller customer base for distributing fixed costs than large foreign competitors. as mentioned, some banks have tried to compensate by entering into cooperation agreements. however, it might be difficult to reduce total costs without a substantial reduction in the costs of more traditional distribution. banks are thus facing a challenge with regard to a further scaling back of the physical distribution network. in general, financial institutions are facing considerable challenges in adapting to new technologies, intensified competition and globalisation. substantial investments will probably be required to keep them competitive. both management and employees will have to devote considerable attention to these aspects. the wrong solution or approach could weaken banks ’ competitive position, profitability and financial strength. this may also have negative implications for financial stability. however, i don ’ t want to give you the impression it ’ s all doom and gloom. new technologies offer great opportunities for streamlining operations and improving efficiency. there should also be new business opportunities. although the financial sector is undergoing fundamental changes, competent market participants should have every opportunity to thrive in a changing environment. 6. consequences for the authorities developments in the financial sector also pose challenges for the authorities. let me give you a few examples. the growth of complex financial conglomerates represents considerable challenges for supervision and crisis resolution. the international trend towards one national supervisory authority is probably advantageous in this respect. the nordic countries have led the way here. the growth of institutions with a significant presence in several countries has increased the need for cooperation between the authorities of different countries. bilateral and multilateral memorandums of understanding are an important tool in this respect. the nordic supervisory

competitive in the retail market. in the segment of large enterprises, however, production and distribution are perhaps more difficult to separate. this may imply that many nordic banks are too small to compete for the business of large and advanced customers. competition in this segment is perhaps more international than nordic. how does cross - border integration change the risk outlook for the financial system? if it improves the long - term profitability, and thus the robustness of institutions, it is clearly advantageous. spreading production costs over a larger customer base may improve profits. in addition, cross - border competition might lead to efficiency gains and a spillover of best practices. however, there are also counter - arguments. for example, increasing the size of operations may reduce management focus. in general, more integrated financial markets can spread financial unrest between countries more easily. this could have a negative effect on financial stability. on the other hand, banks with activities in several countries should be in a stronger position to cope with a recession or a crisis situation in a given country than banks whose activity is confined to one single country. this is positive from a financial stability point of view. 5. 2 the internet as a distribution channel for financial services let me now turn to the impact of the internet on the banking and financial services industry. the internet creates new opportunities for traditional banks. for example, banks should be well positioned to become key operators in trading on the internet. they have a large customer base and strong brand names, and can offer payment transmission services, advertising space and links on their home pages. internationally, many banks have agreements with internet or telecommunication companies for the development of internet banking and marketplaces on the internet. this is probably just the beginning of a trend towards increased cooperation across industry boundaries. the internet poses great challenges as well. it is clearly intensifying competition in the industry. this is partly because it is easier for customers to compare prices and terms and partly because it is simpler for new operators to penetrate the market. the internet may also change the relative positions of existing market participants. many nordic banks have established some form of internet banking. so far, most services offered on the internet are relatively simple, for example loan applications, bill payments and account transfers. these are probably the most important services for the majority of customers. several banks also offer trading in shares and fund units on the internet. the product range and user - friendliness can be expected to increase in the period ahead. i ’ m sure discussions during this conference