In concert with better risk modeling, securitization and credit derivatives have facilitated the dispersion of credit risk across firms and across sectors of the financial system. These changes have led to significant risk transfers within the banking system, as well as a net transfer of credit risk from commercial banks to other financial intermediaries. As a result, we believe we are seeing a more efficient risk allocation within the financial system as a whole, since risks can be transferred to firms where they will diversify, rather than reinforce, risks arising from core businesses and to parts of the financial system that are significantly less leveraged than banks and securities firms, such as institutional investors and mutual funds. These risk management advances have been accompanied by the growth of key derivatives markets that have lowered the costs of hedging market-price-sensitive positions and activities. One important example of this is the growth of the market for long-dated swaps, which are now used by banks to hedge mortgage securities and whole loans. The notional value of long-dated interest rate derivatives (those with maturities of more than 5 years) has more than tripled since the end of 1998, considerably faster growth than for comparable shorter-dated instruments. The growth of these markets reflects a very substantial increase in hedging capacity, and this “wider pipeline” seems likely to facilitate the ease with which the market adjusts in conditions of stress. Growth in these OTC derivatives markets has been accompanied by welcome improvements in market practice.
At the same time, labour shortages have persisted in many sectors and overt unemployment has been stable and low. The business sector must restructure rapidly when real wages increase sharply. Many activities will no longer be profitable and will be shut down. This could lead to higher unemployment. However, lower employment will not necessarily be reflected in unemployment figures. We may instead see a flow of discouraged workers into, for example, disability pensions, early retirement schemes or different types of adjustment packages. The extent to which these schemes are used will depend on financial incentives and entitlement thresholds. 8  BIS Review 20/2002  In Norway, the employment rate is among the highest in the OECD area. This reflects both high labour force participation and low unemployment. The picture becomes more mixed when average working hours are taken into account. The average is lower in Norway than in other countries. The sickness absence rate is high. Part-time employment is widespread. The average number of person-hours worked in the working-age population is relatively low, despite high labour force participation and low unemployment. Among OECD countries, the only countries with lower figures than Norway are those with very high unemployment. In Norway, average working hours have fallen by more than 20 per cent in the last thirty years. This can be partly explained by the way working life and child care are organised, but similar trends are also seen in many other countries, especially in Scandinavia.