- long consequences for economic developments. all that said, however, the challenges facing banks today require a broader set of instruments than those used by the nordic authorities 20 years ago, for two main reasons : first, the situation for banks is more complex. the authorities have to distinguish more clearly between insolvent banks and banks that are solvent but in need of more capital in order to increase lending. the lessons from the nordic banking crisis can be drawn on for the insolvent banks. for the solvent banks, the challenge is to maintain their lending capacity. this is particularly important given that other credit markets are not functioning normally, so that it is difficult, or impossible, for businesses to acquire funding directly from bond markets. but without more capital, the banks are not willing to accept new loans on their balance sheets. the main challenge facing the authorities today therefore is to ensure that solvent banks increase their financial strength and thereby their lending capacity. at the same time, it is important to have an exit strategy so that capital injections today do not translate into an increase in state ownership when the crisis is over. second, cross - border banking has been increasing. twenty years ago, all the main nordic banks were national banks. today, for example, four of the five largest banks in norway are foreign - owned ( three branches and one subsidiary ). a national authority cannot be expected to bolster the financial strength of branches of foreign banks : indeed, it could be complicated to do this even for foreign - owned subsidiaries. while we were able to choose national solutions to the banking crisis 20 years ago, any effective solution to today ’ s situation will require an internationally harmonised approach. as today ’ s financial crisis progressively gets resolved, it will be necessary to start the process of preventing future crises. this will require substantial reform of the regulatory framework. banks will have to strengthen their capital and their liquidity buffers. and financial regulation must have a less pro - cyclical effect. the objective must be to enable the banks to curb the impact of shocks on the economy, rather than to amplify them, as is the case now, where negative spirals are generated between the financial system and the real economy. because of the global character of today ’ s financial crisis, the authorities must work in concert to find solutions, both in terms of recapitalisation of the banks and regulation of the financial sector.

unemployment is low. at the same time, there are signs that the labour market is less tight than earlier. employment growth has declined, and unemployment increased a little through last year. unemployment has evolved as we projected in december, while employment appears to be slightly higher than projected. chart : inflation broadly in line with projections price inflation has declined since last summer but remains markedly above the inflation target. energy prices increased through autumn so that overall consumer price inflation has moved back up somewhat. excluding energy prices and indirect tax changes, inflation moved down to 5. 5 percent in december broadly as projected, with a fall in both imported goods inflation and the rate of increase in domestic goods and services prices. chart : policy rate will likely remain at the current level for some time the committee assesses that the policy rate is now sufficiently high to return inflation to target within a reasonable time horizon. monetary policy is having a tightening effect, and the economy is cooling down. it will take time before we see the full effects of the past rate hikes. at the same time, business costs have risen considerably in recent years. continued high wage growth and the krone depreciation through last year will likely restrain disinflation. we therefore believe a continued tight monetary policy stance will be needed for some time ahead. further out, when inflation comes down and economic conditions so warrant, the committee can start lowering the policy rate. there is uncertainty about future developments in the norwegian economy. if input cost inflation remains elevated or the krone depreciates again, price inflation may remain high longer than projected. in that case, the committee is prepared to raise the policy rate again. if there is a more pronounced slowdown in the norwegian economy or inflation declines more rapidly, the policy rate may be lowered earlier than envisaged in december. 2 / 2 bis - central bankers'speeches