The guarantee is limited to a maximum of NOK 2m per depositor per bank. This represents a tightening for savings banks in relation to earlier statutory rules. For commercial banks this provides clarification in relation to the practice that was chosen during the banking crisis when all  BIS Review 124/1999  2  deposits were covered even if they were not covered by a formal guarantee. In relation to rules in other countries, the deposit guarantee in Norway is very generous. During the banking crisis, subordinated loan capital was not written down in the crisis banks, although the banks’ guarantee funds and later the state had to provide support to ensure continued operations. Subordinated loan capital did not function as a buffer as intended. Under the new Bank Guarantee Act, this capital can, subject to certain criteria, be drawn on while the bank is still operating. This increases the real buffer capital. It also means that banks with insufficient capital, and banks that take excessive risk, have to pay more for subordinated loan capital. This boosts market discipline. The risk of problems in one institution or a market segment spreading to other institutions or markets through the payment system is substantially reduced. A large share of interbank transactions is settled continuously during the day through Norges Bank’s settlement system. The largest interbank payments are settled individually and continuously on a gross basis. This reduces the risk of crediting an account without the payment due being transferred.
In any event, the question of whether and when government support is to be provided should be unclear, and the conditions triggering support should be very strict. 6. Norges Bank’s liquidity support  Ultimately, it is only the central bank that can secure the liquidity in the financial system, which is why it is called the lender of last resort. The classic example of a liquidity crisis is a situation where there is a rupture of confidence in the banking system. Depositors panic and shift funds to more liquid assets, primarily cash. The conventional formulation of the role of lender of last resort is that the central bank shall supply ample liquidity during the crisis - at a penalty rate - to illiquid but solvent institutions. In the Norges Bank Act this role is anchored in our responsibility for effective payment systems and our duty to exercise the traditional functions of a central bank. 5  BIS Review 124/1999  This raises three questions: •  What instruments are available to Norges Bank? •  How does one determine whether an illiquid institution is solvent or not? •  When is financial stability in jeopardy? These questions are highly interdependent. Norges Bank can use several instruments in the event of a liquidity crisis. If a crisis affects the whole financial system, we can change interest rates and supply large volumes of liquidity to the banking system.