Øystein Olsen: Economic perspectives Annual address by Mr Øystein Olsen, Governor of the Norges Bank (Central Bank of Norway), to the Supervisory Council of Norges Bank and invited guests, Oslo, 12 February 2015. *  *  *  Accompanying charts can be found at the end of the speech. An oil-driven economy It is no coincidence that the walls in this hall cover the monetary history of modern Norway. The exhibit begins with the speciedaler from 1817 and continues up to the current banknote series. Money is at the core of central banking. The central bank’s task is to ensure the availability of means of payment and to preserve trust in the value of money. Low and stable inflation is the primary objective of monetary policy. People must also be assured that banknotes are genuine. It has become increasingly difficult to prevent the counterfeiting of banknotes. The current banknote series is due for replacement and work on a new series is well underway. The new banknotes are intended to function as a calling card for Norway. The choice of the sea as the theme embraces both our past and present. We have always made good use of the opportunities the sea has provided. It has been our lifeblood, and it has been a main artery. Fishing, shipping and trade have been a source of livelihood for many. With its changing face and magical power, it has also inspired artists.
The problem became rather apparent thanks to the GFC, which witnessed cases in which bank managers took excessive risks or otherwise breached the trust of their customers in the pursuit of profit and bonuses. In some infamous cases, such as AIGFP and Merrill Lynch, sizable bonuses, funded by taxpayers’ money, were still paid to managers even though their actions had arguably contributed to the failure of the firms. This “heads I win, tails you lose” regime in modern banking is clearly a recipe for disaster and can do very little to help enhance the trust and reputation of bankers. 8. Another material change in banking from the “good old days” is the problem of what I call “short-termism” amongst some bank shareholders (“impatient capital” focused only on bolstering their own short-term returns). It has also become increasingly common for senior bank managers, especially at the top levels, to be hired on contract basis. While this might be justifiable from the point of view of hiring the best talent available in the market, it could have the unfortunate side effect of cultivating short-termism amongst senior bankers if they only work for a contract or two and therefore must deliver tangible and quantifiable financial results within a short period of time, such as a target RoE. In essence, like football managers, they survive on their reputation for delivering fast results during the current league season. The problem has been exacerbated by two more factors.