Chart 7  Krone exchange rate 6,0  75 Basket index  80  ECU index  85  6,5 7,0  90  Euro  95  7,5  100  8,0  105  8,5  110  9,0  115 80 82 84 86 88 90 92 94 96 98 Source: Norges Bank Legg inn filadresse her  The pressure against the krone exchange rate was particularly strong in the autumn of 1998. The crisis, first in Asia and later in Russia, led to considerable turbulence in international markets. At the same time, pressure in the labour market led to high wage increases, while the current account was negatively affected by a fall in export prices, combined with increases in imports. All in all, these factors contributed to creating depreciation expectations. Thus, fluctuations in oil prices represent only one of many causes of exchange rate variability over the past few years. Monetary policy is aiming at exchange rate stability. The krone exchange rate depreciated gradually through the first half of 1998, and in August there was a strong pressure against the krone. Norges Bank responded by increasing its key rates seven times through 1998, with a total of 4½ percentage points. After the last interest rate increase, in August 1998, the interest rate on banks’ deposits in Norges Bank was 8%. The strong increase in interest rates was not sufficient to bring the exchange rate back to its initial range.
Resolution is the toughest nut to crack in the financial reform package, but it is also the one that I think does more to unlock other issues, including the appropriate steady-state endpoint for the bank capital regime. Put simply, the answer in my view is different in a world of effective resolution that ends too big to fail. But in the alternative outcome, where too big to fail remains with us and there are doubts around the effectiveness of resolution, it is hard to avoid the conclusion that higher capital requirements will follow, and cross-border establishment will be through subsidiaries. Let me also say that we have made more progress on resolution in the last few years than many people expected. To say that we are not there yet should not conceal the real progress made. And, an important credit on this goes to Paul Tucker who has led much of the international policy thinking on resolution. Paul leaves us at the end of the week for the calmer environment of Harvard – we shall miss him in many ways, and I hope that when we get to an outcome on bank resolution that meets our wish to reject the permanence of fragmentation, we will remember how much Paul did to get us there.