In addition, a monopolist may have few incentives to engage in product development. In most cases, therefore, efficiency will be higher with several competing producers of payment services. A genuine possibility that new participants may enter the market may prevent monopolists from taking out a monopoly profit. This may also encourage the producer to maintain a high level of operating reliability and to further develop the services. Strong customers may also contribute to reducing the power of the large producers. Customers’ bargaining power normally depends on their size, and small banks can collaborate and form alliances to increase their bargaining power as buyers. However, the majority of the banks’ customers will not have bargaining power vis-à-vis banks, so it is important that there are many banks competing to supply payment services to customers. Efficiency in the Norwegian system Overall, the Norwegian system for retail payment services is fast, reasonably priced and safe. 3. Productivity gains in the 1990s Per cent  20  15  10  20  Financial services  15  Financial services, average  Mainland Norway  10  -5  0 '0  98  96  94  0  92  0  90  5  88  5  -5  Retail payments are settled in Norges Bank twice a day. Depending on the time of day that the payment is made, the funds will be available in the payee's account on the same day that payment is made or the next working day.
When many banks encounter problems at the same time, history shows that the authorities have little recourse other than to help them. In that case, being different brings little gain. When they are all in the same boat, bank executives can easily argue that the problems were not self-inflicted. However, the loss associated with being different is considerable if a bank is alone in encountering problems. The result is that banks engage in herd behaviour and the risk in the financial system becomes excessive. So far I have spoken about how various forms of market failure in the banking system lead to systemic risk that is higher than what is socially optimal. The level of credit in the economy may also become excessive. The economy then becomes vulnerable. The reason is external effects between banks and the wider economy. Loan collateral can give rise to such external effects. One reason banks demand collateral is because they do not have complete information about loan applicants. The collateral value is a security and a restriction on the amount that can be borrowed. When overall credit increases, the value of residential and non-residential property rises. Other economic agents experience a rise in their own collateral values, which they then use to borrow more. But rapid credit growth increases the risk of a deep economic downturn. The interaction can go into reverse. Borrowers that have to sell the collateral to deleverage, push down the collateral values of other borrowers.