Among the many factors that have influenced the work of the Committee over the years, I thought I would identify five that have shaped what the Committee is today and will continue to guide its activities in the future. The first and most obvious is the evolution from a coordinating and information-sharing group to one that has become a standard setter. Although the 1975 Concordat was the Committee’s first substantive agreement, and its first public document, it was not a standard per se: rather, it was a sensible agreement on how supervisory responsibilities could be divided for banks operating across national boundaries. Its goal was modest: to make sure no bank could escape supervision. It did not try to harmonise supervisory standards. And, of course, it was primarily directed at supervisors, not banks themselves. In subsequent years, the Committee pronounced on international lending and foreign exchange positions. These documents began to set expectations for the way in which banks should manage these risks, but they were not standards in the way we use the word today. It was the first Basel Accord that really marked this new role for the Committee. As in 1974, a severe crisis triggered this step – in that case, the Latin American debt crisis of the early 1980s, which raised the political pressure for banks to increase their capital base and for the regulators to create an international level playing field in this respect.
Expectations concerning future inflation and economic stability have considerable impact, not least in the foreign exchange market. In the long term, output and employment are determined by the supply of labour, capital and technology and restructuring capacity. Monetary policy can contribute to smoothing fluctuations in output and employment. Norges Bank weighs stable inflation against stable output and employment. The economy grows over time. Output will in some periods lie below long-term trend growth and in others above trend. Stabilising output growth means seeking to maintain actual output near trend. The output gap is a measure of the difference between the actual level of output and potential output. Developments in the output gap provide a basis for assessing cyclical developments and can thus also shed light on domestic price and cost pressures in the economy. It is difficult to know how high capacity utilisation is at any given time. Output and employment figures are often revised and do not therefore always present an accurate picture of the current economic situation. Norges Bank therefore also uses a number of other indicators to gauge the temperature of the Norwegian economy. The period of high capacity utilisation that began in 1997 came to an end in winter 2003. The Norwegian economy was hit by a pronounced downturn in the global economy. An economic turnaround has now occurred in Norway, with a soft landing after the long period of high domestic cost inflation and sluggish external activity. Output is showing a marked increase, but inflation is low.