In the field, this is referred to as measures that increase the risk of moral hazard. 10  In bad times, the capital adequacy requirement is reduced to 1.5 times the international minimum requirement. See Swiss Federal Banking Commission (2008): “SFBC and large banks agree to set higher capital adequacy targets and introduce a leverage ratio”, press release 4 December. 11  See Myners, Paul (2009): “Developing a New Financial Architecture: Lessons Learned from the Crises”, speech at the Financial Times Global Finance Forum, 18 September, HM Treasury. The same theme is also dealt with in Bair, Sheila (2009): “Remarks by FDIC Chairman Sheila Bair to the International Institute of Finance, Istanbul”, FDIC, 4 October. 10  BIS Review 131/2009  I can provide an example. A creditor may for example assume that big banks are in practice “insured” by the authorities, which will also be reflected in rating agencies’ assessments. Banks considered systemically important receive a higher rating. As a result, funding costs for these banks are lower, allowing them to increase leverage and expand even further. Reducing the procyclicality of bank behaviour Both international studies and Norges Bank studies indicate that the current capital adequacy rules, Basel II, amplify the procyclical effects arising from bank behaviour. 12 During an expansion, bank earnings are high. Ample supply of capital leads to high credit growth. In a  12  See Andersen, H. (2009), “Norwegian Banks in a Recession: Procyclical Implications of Basel II”, Working paper 2009/4, Norges Bank , and Kashyap, A.K.
In Spain, banks have had to provision for potential losses through the cycle. They were required to provision using non-tax deductible amounts for future losses at the time the loan was extended. Such dynamic provisioning has probably functioned effectively also because this system did not require that the supervisory authorities or the banks themselves had to decide that capital should be increased. 12  BIS Review 131/2009  Nordic cooperation  Equal competition considerations require that banking rules are practiced as evenly as possible across countries. For Norway, there are limits to how effectively regulations specific to Norway will be because we are part of the Nordic banking market. The Nordic region, however, is a well-suited region for an active use of regulatory measures. Nordic banks engage in cross-border operations. At the same time, they have little activity outside of the Nordic region. Nor are foreign banks from other regions large in this region. The conditions are therefore in place for effective cooperation in the area of banking regulation and crisis management between the political authorities, supervisory authorities and central banks. In the growth period from 2004 to 2008, foreign banks expanded rapidly in the Nordic market, but during and after the crisis they curbed their activity. I am afraid it can be said that they have amplified fluctuations in Norwegian markets. However, we assume the decline in their market share over the past year is attributable to their being harder hit by the international crisis than Norwegian banks.