Given those changes, I want to explain the rationale for large scale asset purchases in the current economic climate. In doing so, I will address two key questions. First, how will asset purchases help us meet the inflation target? And second, how will we monitor the progress of the policy and assess its effectiveness? How will asset purchases help us to meet the inflation target? The objective of the asset purchase programme is to boost nominal spending in order to hit the inflation target. The tightening in the availability of credit and the collapse in confidence has led to a sharp slowing in the growth of nominal demand. The four-quarter growth rate of nominal GDP sank to a record low in the final quarter of last year. The weakness in nominal spending has been accompanied by a sharp slowdown in the growth of bank lending to firms and households and in the growth of money holdings of the non-financial sector. At our policy meeting earlier this month, the Committee judged that without the additional stimulus provided by the asset purchase programme, the growth of nominal spending would be insufficient to meet the inflation objective. The MPC instructed the Bank to use the additional reserves to purchase two types of assets: gilts and high-quality corporate debt. This twin-track approach allows for asset purchases to stimulate nominal spending in a variety of different ways. Such a pragmatic strategy seems entirely sensible given that this in the first time these unconventional tools have been used in the UK.
In Spain, banks have had to provision for potential losses through the cycle. They were required to provision using non-tax deductible amounts for future losses at the time the loan was extended. Such dynamic provisioning has probably functioned effectively also because this system did not require that the supervisory authorities or the banks themselves had to decide that capital should be increased. 12  BIS Review 131/2009  Nordic cooperation  Equal competition considerations require that banking rules are practiced as evenly as possible across countries. For Norway, there are limits to how effectively regulations specific to Norway will be because we are part of the Nordic banking market. The Nordic region, however, is a well-suited region for an active use of regulatory measures. Nordic banks engage in cross-border operations. At the same time, they have little activity outside of the Nordic region. Nor are foreign banks from other regions large in this region. The conditions are therefore in place for effective cooperation in the area of banking regulation and crisis management between the political authorities, supervisory authorities and central banks. In the growth period from 2004 to 2008, foreign banks expanded rapidly in the Nordic market, but during and after the crisis they curbed their activity. I am afraid it can be said that they have amplified fluctuations in Norwegian markets. However, we assume the decline in their market share over the past year is attributable to their being harder hit by the international crisis than Norwegian banks.