Norges Bank’s main functions The current Norges Bank Act establishes that Norges Bank is Norway’s central bank and describes the Bank’s functions and its role as executive and advisory body for monetary, credit and foreign exchange policy. The functions described are in line with the customary functions of a central bank and follow from the Bank’s key role in financial markets. But there is little in the current Act to indicate which long-term objectives the Bank should pursue. The Commission wants to change this. The Commission proposes the introduction of an objects clause that clearly defines the Bank’s purpose. Norges Bank supports this proposal. At the same time, the Bank would emphasise that the interpretation of the objects clause must reflect the central bank’s different degree of influence over the various objectives. The central bank’s toolbox is limited, and for some objectives, the instruments available to other institutions may be more important for the result. Chart: Section 1-2 Norges Bank’s purpose – the Commission’s proposal The proposed objects clause contains two paragraphs. The first paragraph reads: “the purpose of Norges Bank is to maintain monetary stability and promote the stability of the financial system and an efficient and secure payment system”, while the second paragraph reads: “the Bank shall otherwise contribute to high and stable output and employment”. A well-functioning monetary system is a fundamental prerequisite for the efficient functioning of an economy. Norges Bank plays a key role in this context.
These countries have sought a return on their financial capital abroad by investing, for instance, in US treasuries. The increased demand for US treasury bonds has for a long time been pushing down long-term interest rates in the United States. In addition, the US central bank conducted expansionary monetary policy in connection with the recession at the beginning of the 2000s and in the years immediately following. The low interest rates have stimulated consumption and investment in the United States. They contributed in particular to house prices rising more quickly than household incomes. The rising stock market and house prices contributed to a reduction in household saving, which largely explains the rising current account deficit until the housing market bubble burst. However, the problems of a previously overheated housing market are not limited to the United States, they can also be found in a number of other countries. New forms of borrowing, including subprime loans, contributed to overheating in the US housing market During the years 2004 and 2005 new loan forms became increasingly common in the housing market in the United States, not least subprime loans. Subprime loans are loans aimed at households with low incomes. Often the lenders used very low interest rates during the first two years of the loan as an enticement. However, after this period the interest rates rose substantially. It is likely that the credit assessment of the households was not too comprehensive.