In recent years, supervisors have begun to move more generally toward a system of supervision that encourages prudent risk-taking through the offering of incentives rather than simply enforcing compliance with rigid rules. Internationally, the 1996 Market Risk Amendment to  2  BIS Review 52/2004  the existing Basel Accord represented the first time that banks received explicit capital benefits for developing more sophisticated measures of risk, in that case market risk. Basel II continues this trend by extending incentives to the treatment of credit risk and operational risk. 2.3  Basel II embraces both trends  By stepping back a bit from Basel II’s formulas, we can see that the new capital framework builds on two important trends to incorporate a new philosophy for banking supervision. It combines a riskfocused approach to supervision with incentives for prudent risk-taking into a coherent policy objective that seeks to promote adequate capitalisation. By incorporating in all three of its pillars clear incentives for banks to improve their management of risk, Basel II reinforces management’s focus on control structures. •  For example, in Basel II’s minimum capital requirements - or Pillar 1 - regulatory capital charges are aligned more closely to a bank’s own measures of risk. This creates immediate incentives for banks to improve those measures. •  Likewise, Pillar 2 - supervisory review - emphasises that responsibility for evaluating capital adequacy lies with a bank’s management.
Petroleum revenues are gradually phased into the economy, approximately in pace with the expected real return on the Government Petroleum Fund.” The first sentence can be seen as a justification for a gradual phasing in of petroleum revenues. A phasing in of revenues based on using the expected real return on the Petroleum Fund must be said to be reasonably controlled and gradual. Another aspect is that the plans do not call for using the actual wealth. However, the expansionary impetus to the economy in any one year will depend on the time profile for the accumulation of capital in the Petroleum Fund. 8  BIS Review 7/2002  There was broad support in the Storting for the guidelines. Both the previous and current Government have placed considerable emphasis on adhering to these guidelines in the government budget for 2002. The use of petroleum revenues is calculated on the basis of the structural, non-oil deficit. This means that, in general, changes in activity levels in the economy do not influence the use of petroleum revenues. This also implies that fiscal policy will contribute to curbing fluctuations through automatic stabilisers. In years with a high level of activity, the actual budget deficit will be smaller than the structural deficit. In years with a low level of activity, the actual deficit will be higher. It is the level, and not changes in economic activity, that influences the structural deficit.