Funding in securities markets is too expensive for the smallest enterprises. The securities market plays less of a role in Norway compared with other European countries and the US. The market for equity capital is particularly small in Norway. Norwegian companies often rely on foreign funding for new projects. The thin market for securities capital in Norway may be an obstacle to the development of the business sector. This means that it is essential that the banking system function smoothly. When they function, the strength of financial markets lies in their transparency and adaptability. Capital which is tied up in unprofitable activity can be freed up for other activities. Competition for capital contributes to creative destruction. 13  BIS Review 14/2000  Chart 15  Structural changes also take place within individual companies. One example is NOKIA. Thirty years ago, the forerunners of the world’s leading producer of cellular telephones were primarily producing telephone cables, rubber boots and tyres. At that time, the electronics division accounted for 3% of NOKIA’s turnover and employed 460 persons. However, research and product development led to a wider range of products. In 1988 NOKIA was the third largest producer of television sets in Europe and the largest producer of cellular telephone equipment in the Nordic area. NOKIA experienced a deep crisis in the beginning of the 1990s, as did many Finnish companies. NOKIA decided to concentrate on telecommunications. The split-up of the group was initiated from within the company. Non-core activities were spun off and sold.
After analysing the different alternatives, the SNB decided to use a combination of SNB Bills and reverse repos. These instruments are perfectly in line with our monetary policy strategy. There is, however, still a range of alternative instruments available, should there be a need for them. Let me explain briefly how the method chosen by the SNB works. As I have already mentioned, the SNB aims to keep the three-month Libor within a certain target range. This rate depends on the level of liquidity in the financial markets. If there is excess liquidity, the SNB must withdraw a certain amount to influence the level of the Libor. In so doing, it uses a two-pronged approach: on the one hand, it issues SNB Bills with different terms. Banks or investors who purchase these bills pay the SNB with liquid funds, which are thus drained from the financial system. On the other hand, the SNB also makes use of reverse repos in order to complete the withdrawal of liquidity achieved by the use of SNB Bills. In a reverse repo, the SNB delivers securities to a bank in exchange for liquid funds, thereby absorbing liquidity from the financial system. Reverse repos with a term of, in general, one week are used to manage short-term liquidity. SNB Bills, on the other hand, are used to manage liquidity in the longer term (one month or more).