Nor are taxes on capital movements or currency trading a realistic or effective alternative. Taxes will not prevent substantial short-term speculative waves. A tax system would have to have broad international support, because without it currency trading would only shift to countries without taxes. The benefit of remaining outside would increase with the number of countries that participate. What can be done to improve a system that is functioning poorly? If a country is to benefit from a free capital market, it must draw up legislation providing for regulations and supervision that ensure stability. Countries with poorly developed capital markets may benefit from some limitations. They should exercise some caution in opening these markets too suddenly. The flow of capital is like electricity. Adequate insulation should be in place before turning it on. When the Nordic countries liberalised credit markets in the 1980s, we experienced considerable problems because supervision and rules were not adequate. The same has been witnessed in the crisis in Asia and Russia. Inadequate and ineffective legislation and supervision resulted in weak control of financial sectors in the beleaguered countries. The crisis is not only due to an unsuccessful policy in the countries concerned. Banks and funds in industrial countries accounted for the sharp growth in capital inflows to emerging market economies in the years prior to the crisis. Those who invested in these countries based their decisions on insufficient and, in part, misleading information.
The oil companies have therefore enjoyed stable operating parameters over the last 15 years, although this sector is also faced with the challenge of finding new solutions in response to the sharp shifts in market conditions that we have witnessed recently. This will once again require forward-looking strategies and willingness to compromise. 5  BIS Review 20/1999  The government’s supervisory tasks are substantial. Confidence in the banking system in critical situations may also be contingent on the government’s willingness to provide financial backing. There is a fundamental conflict between these two roles and the government’s role as bank owner. People must be confident that the government does not conceal its own mistakes when intervening in the face of a crisis in the banking system should this again prove necessary. It is virtually impossible to establish such confidence if the government is also responsible for the crisis through its ownership. State ownership in the banking industry has been maintained with a view to ensuring stable national ownership. It seems that, in practice, most comparable countries attach importance to having large financial institutions with a national anchor, but most of them avoid state ownership and the associated conflicts of interest. We should also be able to do this. However, I would like to stress that a greater number of foreign financial institutions could also be advantageous. Foreign institutions will normally be larger and more diversified than Norwegian institutions. This could generate better and cheaper services in the Norwegian market.