If a settlement bank encounters difficulties and there are no back-up solutions, there will be a risk of widespread disruption of the payment system. This risk can be reduced through good back-up systems. Second-tier banks have recently improved their back-up solutions. Most banks have an account at Norges Bank. In the course of 2013, all 106 of the second-tier banks with an account at Norges Bank have submitted authorisations permitting the bank to be moved up automatically to first-tier level if the settlement bank should fail, enabling them if necessary to participate in net settlements at Norges Bank directly at short notice. This makes second-tier banks and the settlement system as a whole less dependent on the private settlement banks. The authorisations have strengthened financial stability. Banks participating directly in net settlements are required to have sufficient cover for their clearing positions. Satisfying this requirement is the banks’ own responsibility. They can do this by either depositing funds at Norges Bank or pledging approved securities in favour of Norges Bank. Our analyses show that the great majority of second-tier banks have sufficient liquidity in Norges Bank’s settlement system to be able to participate directly in the net settlements. However, clearing positions can vary widely. Banks participating directly in the settlements over time must maintain sound liquidity management. Conclusion Allow me to conclude by highlighting that new and improved regulation of banks will help to reduce the likelihood of deep financial crises.
The Ministry of Finance has been tasked with setting the level of the countercyclical capital buffer. Norges Bank has been tasked with preparing a basis for the buffer decision and providing advice to the Ministry of Finance regarding the level of the buffer. In preparing the basis for the buffer decision, Norges Bank will exchange information and assessments with Finanstilsynet. Since March of this year, Norges Bank has published an assessment of the need for a countercyclical capital buffer in the Monetary Policy Report in addition to its monetary policy assessment. Norges Bank will give its first advice on the level of the buffer to the Ministry of Finance in connection with the next Monetary Policy Report, to be published at the beginning of December. Text slide: Criteria for an appropriate countercyclical capital buffer In line with the purpose of the countercyclical capital buffer, Norges Bank has formulated three criteria for setting an appropriate buffer rate. The buffer should ensure that the resilience of banks is strengthened during an upturn. The buffer requirement should be viewed in the light of other requirements applying to banks, particularly when new requirements are introduced. One of the most important purposes of the capital buffer is to alleviate stress in the financial system. History shows that the foundation for banking crises is laid during upturns. When financial imbalances build up, this increases the likelihood of substantial losses in the entire banking system.