In order to dampen shocks in a country and mitigate the contagion effects on other countries, close collaboration between a financial corporation’s home country and the host country in which it operates is necessary. In its latest annual report, the BIS writes the following: “Close cooperation between home and host authorities will be inevitable. And some responsibility will have to shift to host authorities for deciding on the settings that apply to exposures in their jurisdictions and for advising home authorities of local financial conditions.” Norwegian banks are part of a common Nordic banking market. The rapid expansion of foreign banks in the Norwegian market in the growth period from 2004 to 2008 was trimmed back during and after the crisis. I am afraid it must be said that they have amplified fluctuations in Norway. However, we assume that the decline in their market share is due to the impact of the international crisis, which has generally been more severe for foreign banks than for Norwegian banks. BIS Review 113/2010  9  Under the Basel Committee proposal, the time-varying capital buffer requirement will apply to all banks operating in a country, including branches of foreign banks. Home country authorities will enforce the buffer requirement imposed by host country authorities. This means that Norwegian supervisory authorities, for example, can impose a supplementary capital requirement in periods of high credit growth in Norway. The requirement will apply to Norwegian, Swedish, Danish and other banks that provide loans to Norwegian households and businesses.
Starting in the autumn of 2008 and continuing into the early months of 2009, demand – in the UK and globally – weakened very sharply. Consumers and firms held back spending plans in the wake of the massive negative confidence shocks associated with the events surrounding the collapse of Lehman Brothers and the knock-on effects on the rest of the financial system. Along with the rest of the MPC, I strongly supported the decision to reduce interest rates from 5% to 0.5% between October 2008 and March 2009, and to inject extra money into the economy through Quantitative Easing. The bulk of this money injection £ of the total £ was agreed by the time of the August 2009 Inflation Report, which was published just under a year ago. Though that Report looked forward to a recovery in the economy, very little economic data available at that time pointed in that direction. Rather, the economic data last summer were telling us how sharply the economy had contracted in late 2008 and the first half of 2009 both at home and abroad, and how sharply unemployment had risen as a result. A strong theme underpinning the analysis of both the May and August Inflation Reports last year was that UK inflation was expected to be pushed significantly below target by a large margin of spare capacity.