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Prepared by Valerie Cerra.
Much of the information presented in this section and those following reflect discussions with the Banking, Insurance, and Securities Commission (BISC); Norges Bank; the Ministry of Finance; the Norwegian Bankers Association; and several Norwegian private financial institutions.
As an exception, the banking supervisors can approve new subordinated capital for a bank with a Tier 1 capital ratio between 6Y2 and 7 percent, provided that the bank has a low-risk loan portfolio and good risk management system.
Many of these lessons have been underscored by Norges Bank Governor Gjedrem in an October 1999 speech to the Norwegian Savings Banks Association, entitled “Financial Stability—Experience and Challenges”
However, Drees and Pazarbasioglu (1998) provide several reasons in support of their assessment that restructuring efforts were more successful in Sweden than in Norway or Finland.
A study by Claessens, Demirguc-Kunt, and Huizinga (1998) suggests that an increase in the foreign share of bank ownership tends to reduce profitability and overhead expenses of domestic banks, so the general effect of foreign bank entry may be positive for bank customers. The number of foreign entrants seems to matter more than their market share, suggesting that local banks respond to the threat of competition.
Much of this evidence is based on the United States, with few complete studies covering Europe. Dermine (1999) elaborates in more detail on the empirical literature.
See Dermine (1999) for an extensive treatment of the public policy issues in Europe concerning bank mergers.
Based on twice the book value as was required in the French bailout of Credit Lyonnais.
For example, the two largest sets of publically-owned banks in Germany controlled 32 percent of non-bank deposits and 29 percent of domestic lending to non-banks as of June 1999. See Kodres (1999) for more details.
For example, net lending by the government recently comprised the Norwegian State Housing Fund (6.3 billion NOK), the State Education Loan Fund (3.1 billion NOK), the Norwegian Regional and Development Fund (100 million NOK), and the State Bank of Agriculture (80 million NOK), which contained some subsidy element.