Unlike many other countries dealing with a banking crisis, Norway did not set up a separate asset management company - or “bad bank” - to handle problem loans. There were several reasons why we chose not to do this: •  In none of the problem banks in Norway was the ratio of non-performing loans considered to be of such magnitude that it would require so much attention from the management of the bank that it would distract them from their main goal - to bring the bank back to profitability. •  The banks themselves knew their borrowers best and had experience in working out defaulted loans. Handling such loans will always be part of a large bank’s business, and transferring employees with this expertise to a separate company might have left the banks more vulnerable when they encountered new problem loans. •  Setting up an asset management company and transferring bad loans from the banks would have required complicated accounting and legal work. In particular it would have been very difficult to find a fair price at which the loans should be transferred. •  The responsibility of handling the problem loans should remain with those who had the most to gain from a successful handling - the banks. •  Last but not the least; such an asset management company would have had to be financed by government money. Thus, more taxpayers’ money would have been put at risk.
Már Guðmundsson: Fault lines in cross-border banking Speech by Mr Már Guðmundsson, Governor of the Central Bank of Iceland, delivered at Les Encontres Économiques, Aix-en-Provence, 9 July 2011. *  *  *  My comments relate to cross-border banking and are motivated and informed, on the one hand, by the rise and fall of the Icelandic banks, and on the other hand, by research and policy work that took place at the BIS, during and after my tenure there. The financial crisis revealed major fault lines in cross-border banking. Some emerged at the global level, some at the EU/EEA level, and some at the national level. I would like to use my 10 minutes to take these in turn. The main fault line revealed at the global level is the operation of cross-border banks with large foreign currency balance sheets featuring significant maturity mismatches, but with limited lender of last resort facilities in terms of foreign currency. The nature and magnitude of this phenomenon were not well understood before the crisis. In this connection, let me stress that I am referring to maturity mismatches in terms of foreign currency and not currency mismatches, which was much better understood and somewhat better regulated, due to the experience gained during several past emerging market crises. Some studies still confuse these two phenomena, however, when analysing this latest international financial crisis. Maturity mismatches are, of course, the bread and butter of modern banking, although they make banks vulnerable to refinancing risk and runs.