The global economic recession paved the way for Keynes’ concept of demand management and active government intervention, and the rewriting of textbooks began. After the war, universities produced a new generation of economists filled with ideas of planned economies and regulation. The interest rate was regulated downwards to promote distributional aims. Other regulations had to be tightened to curb the consequences of distorting market prices. And new  1  Odd Nordstoga, Lykkeliten from the album November, Universal in 2010. BIS central bankers’ speeches  1  regulations were then added to alleviate the consequences of the former ones. One regulation came on top of the other and so on. That was the case not only in Norway, but also in many other countries. Detailed regulation – or fine-tuning – prevailed until the 1970s. The scale of regulation was summarised in a speech by Norges Bank Governor Knut Getz Wold at the Norwegian School of Economics in 1972: “Pursuant to the Act relating to access to regulating monetary and credit conditions of 1965, the King can decide to use a wide spectrum of instruments, such as liquidity reserves, foreign exchange reserves, supplementary reserves, investment obligation, direct lending regulation for certain credit institutions, interest rate caps on loans and issuance control in addition to reporting requirements in certain areas.
3  Reinhart, Carmen M. and Kenneth S. Rogoff, “This Time is Different: Eight Centuries of Financial Folly”, Princeton, New Jersey, Princeton University Press 2009. 2  BIS central bankers’ speeches  as described by Thomas Kuhn – do not come about because the defenders of old truths see the light, but rather because they eventually die. 4 If we take a closer look at the Basel III framework, there are still signs of innovation. Macroprudential policy is a new element of the framework, aimed at containing systemic risk in banks and financial institutions. For the first time, international banking regulation includes requirements grounded in the interplay between the banking sector and the rest of the economy. We must acknowledge that in the run-up to a financial crisis, the authorities, banks and other economic agents often confuse good times with normal times. Strong growth in real estate prices, credit and tax revenues are perceived as normal. Statistical filtering methods confirm that trend growth is high and that debt growth is sustainable. This time is different. We should know better – because we have fairly extensive knowledge about the economic background leading to financial crises. Analyses, including our own, show that a rapid accumulation of debt almost always precedes a financial crisis. Empirical studies document that high debt growth increases the probability of a crisis and results in a deeper crisis. 5 Debt is at the core of all financial crises. Real estate prices also rise rapidly ahead of a crisis.