On the other hand, banks with activities in several countries should be in a stronger position to cope with a recession or a crisis situation in a given country than banks whose activity is confined to one single country. This is positive from a financial stability point of view. 5.2  The Internet as a distribution channel for financial services  Let me now turn to the impact of the Internet on the banking and financial services industry. The Internet creates new opportunities for traditional banks. For example, banks should be well positioned to become key operators in trading on the Internet. They have a large customer base and strong brand names, and can offer payment transmission services, advertising space and links on their home pages. Internationally, many banks have agreements with Internet or telecommunication companies for the development of Internet banking and marketplaces on the Internet. This is probably just the beginning of a trend towards increased cooperation across industry boundaries. The Internet poses great challenges as well. It is clearly intensifying competition in the industry. This is partly because it is easier for customers to compare prices and terms and partly because it is simpler for new operators to penetrate the market. The Internet may also change the relative positions of existing market participants. Many Nordic banks have established some form of Internet banking. So far, most services offered on the Internet are relatively simple, for example loan applications, bill payments and account transfers.
Larger and more efficient securities markets - both in equities and debt instruments - provide more financing alternatives for companies and investment alternatives for savers. Companies financed in the securities markets are continuously monitored through a transparent process. Well-functioning securities markets may thus increase the profitability of capital and hence economic growth, by making sure that capital is allocated to the best new investment projects and by facilitating the restructuring of existing companies. In other words: competition for capital contributes to creative destruction. In my opinion, larger and more efficient securities markets will also reduce the risk of financial instability. Let me give you a recent example. The Long Term Capital Management crisis in 1998 showed that banks and securities markets can complement one another in crisis situations. During the crisis, the market for securities with credit risk dried up for a short period. Banks then increased their lending, and thereby averted a more extensive shortage of credit. More frequently, financing through securities markets has been used as a substitute for bank loans in the event of banking problems. The goal of financial stability thus implies both well-functioning banks and securities markets. The optimal balance between the two is difficult to define, but in most countries - including the Nordic countries the financial system would be more robust with larger, more developed securities markets than is the case today. This could also enhance the growth prospects of the respective economies. 5.