We have developed our petroleum resources largely in parallel. The opening of a new gas pipeline from mid-Norway to Easington – Langeled – in October this year is yet another example of the tight bonds between us. Comparing our two countries we find strong similarities - both are affluent, growing briskly, and experiencing low unemployment. Both are open economies with a significant public sector. The UK economy is, however, nearly eight times larger than the Norwegian economy and with a very large and well-developed financial sector, while Norway on the other hand has a much larger oil sector. Challenges in an oil economy Norway ranks as the world’s third largest oil exporter after Saudi Arabia and Russia and the eight largest oil producer. Petroleum activities have contributed substantially to Norway’s GDP, exports and government revenues since the late 1970s. Petroleum activities give Norway an economic base that is not available to many other countries. But oil and gas also present Norway with considerable economic policy challenges. The experience of other countries that have received large, unexpected income from natural resources is not encouraging. Societies that suddenly gain access to huge wealth stemming from natural resources have a tendency to spend the money and then fall into decline. Spain in the 17th century provides a good example of this, as the historian David Landes observed. 1 The colonisation of South and Central America gave access to a wealth of natural resources, not least gold.
Before I turn to our most recent assessment of the stability of the Norwegian financial system, let me give a brief outline of the structure of the financial system. The Norwegian financial system is dominated by banks, with a market share of more than 56 per cent, calculated as the banks’ share of total assets in financial institutions and mutual funds. The banking system is relatively concentrated. The largest bank had a market share of 37 per cent in terms of total assets in the banking sector at the end of 2005, while the largest five had a market share of 61 per cent. Savings banks account for a substantial part of the banking sector. However, most of the savings banks are quite small. To partly compensate for that, some cooperate on a range of products which provides economies of scale while maintaining their independence. During the past decade, activities of foreign-owned banks in Norway have expanded considerably both through take-overs and organic growth. At the end of 2005, they had a market share of over 30 per cent, in terms of total assets. Their lending growth has been higher than for Norwegian-owned banks for several years. The development towards larger cross-border banks makes supervision and crisis management more complicated. In the event of a crisis, central banks, supervisory authorities, political authorities as well as deposit guarantee funds in several countries will have to be involved.