A study from Rogalandsforskning1 shows that there are more newly established businesses in the Trondheim area than in any other urban centres in the country. The business sector in Trondheim is technologically highly advanced. Norges Bank’s regional network reports firm growth in the retail sector and the household service sector. Both manufacturing and corporate services report that the trough has been reached or passed. Activity in the construction industry has also stabilised and the number of new orders is edging up. There is considerable uncertainty about the strength and duration of the upturn. The decline in employment is slowing, but few in the public or private sector report plans to increase employment. The supply of qualified labour is still good and is increasing somewhat in all sectors. The regional network also reports that cost reductions in the business sector, especially in services, are now generating results in the form of improved profitability. The focus appears to have shifted to some extent from cost cutting to strategies for boosting income. Both the public and private sectors appear to be somewhat more positive about investment plans, but are still not signalling significant growth in investment over the next year. Lower interest rates have contributed to more positive expectations concerning future developments. Few market participants believe that there has been any real impact yet, but many expect an improvement in the near future.
We recognize this, even as we encourage firms to put in place stronger and more sophisticated systems more commensurate with the complexity of the risks they are taking. 2  BIS Review 36/2004  •  Comprehensive aggregation of credit exposure: The most sophisticated among large diversified financial institutions have well-developed systems for aggregating credit exposure, with a common methodology and results available relatively quickly, across the full range of transactions and business lines they engage in with a single entity or groups of entities with correlated risks. •  Stress testing and scenario analysis: Firms at the leading edge have moved well beyond reliance on “value-at-risk” complemented by stress tests of discrete shocks. They employ stress tests built around more exacting, forward-looking scenarios integrating large moves in a number of variables, more tailored to the risk profile of the firm and current market conditions, and the reactions of other market participants and counterparties. •  Counterparty credit risk management: The most sophisticated firms use much more careful and sophisticated approaches for measuring potential future exposure, and they analyze how exposures may respond in conditions of significant market stress. With respect to hedge fund exposure in particular, the leading firms employ comprehensive evaluation of the risk profile of the hedge fund to set credit thresholds and terms and a more disciplined approach to setting sufficiently high levels of initial margin. •  Measuring and managing interest rate risk: Leading institutions assess their exposure to interest rate risk in a comprehensive manner across the firm’s business lines.