When we set interest rates, we must always assess the risk of another sharp rise in cost inflation when the labour market tightens. High economic growth often leads to a sharp rise in asset prices and debt. Long periods marked by such developments may be a source of future instability in the real economy. When activity is high and household income expectations are high, asset prices and debt may increase rapidly. Expectations of high corporate profits may stimulate investment and lead to higher equity prices. Such an upswing may result in an increased willingness to take risk among both households and companies. They then become more vulnerable to a future downturn. Since the mid-1990s, debt and house prices have shown a marked increase in Norway. Initially and perhaps for a period, this may be viewed to some extent as a delayed adaptation to the deregulation of the housing and credit markets in the mid-1980s after households had burned their fingers in the first years following the deregulation. Mortgage loan products have since been further developed. Household income has risen considerably in recent years, and household optimism about the future is unusually strong, which may also have contributed to increased demand for loans and the rise in house prices. In addition, expectations of persistently low real interest rates over time may have provided an additional boost to house prices.
What we can do rather is to better use the levers we have at hand to facilitate convergence among regulators and supervisors in the way to address this trade-off, so as to limit ring fencing and prevent a race to the bottom in that area and the resulting market fragmentation: - The first lever is the agreement to and implementation of internationally agreed regulatory standards. Hence the importance for instance at the current juncture of the fair and complete 2/3  BIS central bankers' speeches  implementation of Basel 3. Hence also the importance of ensuring that national regulatory frameworks do not diverge unduly beyond internationally agreed standards and remain equivalent, the importance of the commitment of regulators and supervisors to such convergence, and also the importance of efficient processes to reassess regularly such equivalences - The second lever is the use of forum for information sharing and cooperation among supervisors. Significant progress has been made in that direction that should bear fruit. In Europe, the introduction of resolution and AML colleges for banks and of oversight colleges for CCPs have been helpful to increase the involvement of home and host countries in the supervision of cross-border groups or entities. However, we should also recognize that convergence of regulation and cooperation between supervisors may also have their limits in some circumstances. This is certainly the case when considering the regulation and supervision of central clearing activities, given their systemicity and their natural trend to concentrate and eliminate substitutes.