The bubbles in the equity markets burst. Many years of high investment led to excess capacity in some industries, and unemployment increased. The terrorist attacks on 11 September 2001 put a new damper on economic activity. From the summer of 2002 to the spring of 2003, a highly extraordinary accumulation of negative events in the global community - accounting scandals, fear of terror, war and disease - put a brake on growth. US interest rates, which were sharply reduced at the beginning of the downturn, have subsequently been reduced further. Interest rates have also remained low in the euro area. Key rates are now historically very low for several of our most important trading partners. Long-term interest rates are also very low. The economic situation in Norway remained firmer for a long period, and wage growth was surprisingly high in 2002. There was less scope for low interest rates than among our trading partners. As a result, the interest rate differential against other countries widened. This had an impact on krone exchange rate developments. In addition, special circumstances in the global economy led to a stronger krone than might have been expected from the higher interest rate differential alone. Themes in foreign exchange markets shift. In periods, investor focus on stock returns feeds through to exchange rate movements. During periods of political and economic unrest, investors may choose individual currencies as a safe haven. In the autumn of 2002, the Norwegian krone was probably also perceived as a safe haven.
Simon Topping: Improving the management of risk through implementation of Basel II Speech by Mr Simon Topping, Executive Director, Banking Policy, Hong Kong Monetary Authority, at the ACIHK The Financial Markets Association Basel II Seminar, Hong Kong, 27 September 2005. *  *  *  Only a few years ago it might have seemed a bit strange to invite a regulator to speak on the subject of risk management. After all, a regulator was supposed to have the same relationship to risk as the preacher did to sin: he was against it. Historically, regulation and risk management were opposites. Regulation was supposed to be all about stopping banks from taking risks. Risk management, by contrast, was concerned with how you take on risk and how you manage it. Regulation has been criticised, rightly in my view, for taking insufficient account of modern risk management techniques such as credit risk and operational risk modelling, stress-testing, and portfolio management. Thankfully we are beginning to move away from the days when regulators were perceived as regarding taking any sort of risk as "a bad thing." Regulators care, above all, that the banking system should be sound and stable. One of the most important factors in a sound banking system is that banks should be profitable; and regulators recognise that without risks there is no chance of banks making money. What matters are not the risks that banks take, but how good they are at identifying, monitoring and controlling them.