Interest rates have subsequently declined. The financial position of households is solid, and as a group they will be able to bear higher interest rates. If households reduce saving because house prices rise, their vulnerability may increase. Some indicators show that house prices are in real terms at the peak level recorded in the 1980s. Bank losses have been unusually low for several years. We expect losses to return to a normal level in the period ahead as a result of weaker cyclical trends. We have also seen an expansion in credit to “weak” enterprises. So far, we have not noted an increase in losses or non-performing loans. Nor have the banks increased loss provisions. The increase in long-term debt in high-risk enterprises would indicate, however, that loss provisions should be increased in the near future. Over the last few years, banks have accumulated substantial short-term external debt. Although this debt has gradually been converted into more long-term debt, there is a liquidity risk associated with the debt. When banks encountered problems with refinancing their foreign debt during the banking crisis, Norges Bank intervened with support. As Norges Bank has done on previous occasions, I would warn the banks against assuming that this will again be the case if similar problems should recur. There is some fear in financial markets that a liquidity shortage may occur around the year 2000 in connection with the Y2K problem. This is reflected in money market rates.
Mr Gjedrem focuses on the issue of financial stability: experiences and challenges  Speech given by Mr Svein Gjedrem, Governor of the Central Bank of Norway, at the annual meeting of the Norwegian Savings Banks Association, held in Sandefjord on 21 October 1999. (Shortened version) 1. Introduction  Every day around NOK150–200 billion change hands through the banks’ accounts in Norges Bank. In the course of a week, payments corresponding to our gross national product for an entire year have passed through Norges Bank’s settlement system. These payments involve all types of transaction, from a 10 kroner ice cream purchase to securities transactions where a single transaction may involve billions of kroner. The banks play a pivotal role in the payment system. Deposits are now the predominant means of payment. Payment settlement is the banks’ most important function besides channelling funds from savers to borrowers. In other countries, securities markets are of growing importance. They are taking over an increasing share of banks’ credit intermediation. This may also occur in Norway. Securities are also increasingly serving as collateral in payment settlement. These three elements - payment and settlement systems, banks and other financial institutions, and securities markets - make up the financial system. Every day we experience how dependent a developed economy is on the smooth functioning of this system, i.e. on financial stability. The volume of foreign payments is substantial and on the rise. Banks and securities markets are becoming ever more closely integrated.