Before I turn to our most recent assessment of the stability of the Norwegian financial system, let me give a brief outline of the structure of the financial system. The Norwegian financial system is dominated by banks, with a market share of more than 56 per cent, calculated as the banks’ share of total assets in financial institutions and mutual funds. The banking system is relatively concentrated. The largest bank had a market share of 37 per cent in terms of total assets in the banking sector at the end of 2005, while the largest five had a market share of 61 per cent. Savings banks account for a substantial part of the banking sector. However, most of the savings banks are quite small. To partly compensate for that, some cooperate on a range of products which provides economies of scale while maintaining their independence. During the past decade, activities of foreign-owned banks in Norway have expanded considerably both through take-overs and organic growth. At the end of 2005, they had a market share of over 30 per cent, in terms of total assets. Their lending growth has been higher than for Norwegian-owned banks for several years. The development towards larger cross-border banks makes supervision and crisis management more complicated. In the event of a crisis, central banks, supervisory authorities, political authorities as well as deposit guarantee funds in several countries will have to be involved.
A specific target for monetary policy was thus a necessary supplement to the fiscal rule to ensure reasonable macroeconomic stability. The operational target states that monetary policy in Norway is oriented towards low and stable inflation, with annual consumer price inflation of approximately 2.5 per cent over time. In its conduct of monetary policy, Norges Bank operates a flexible inflation targeting regime, so that weight is given to both variability in inflation and variability in output and employment. 2  BIS Review 106/2006  Current economic situation Since the summer of 2003, there has been a clear upturn in the Norwegian economy. Low domestic interest rates, increased petroleum investment, favourable prices in important export markets, and a strong upturn in the world economy have contributed to solid growth in the Norwegian economy. So far in the upturn, the mainland economy has grown by an average of close to 4 per cent annually. Current information on economic developments indicates that the upswing is continuing. Corporate sector profitability is good. There is strong growth in employment, unemployment has fallen markedly, and household demand continues to rise. Unemployment is now at a historically low level. Seasonally adjusted, registered unemployment stood at 2.3 per cent of the labour force in October. Nevertheless, wage moderation has generally prevailed so far. The opportunities provided by an international labour market may have prompted participants in local and centralised wage negotiations to place greater emphasis on the considerably higher wage level in Norway relative to our trading partners, and potential job vulnerability.