Furthermore, the central bank is of the view that there may be a need for separate regulation of the insurance industry in some areas, as referred to in Norges Bank's submission on the Banking Law Commission's proposal relating to a new law on financial undertakings.

The regulatory framework for financial undertakings is of crucial importance for developments in the financial industry. It is important that a forward-looking regulatory framework is established, which provides the industry with stable operating parameters. Norges Bank places particular emphasis on achieving a framework that promotes efficient and sound institutions and sufficient competition in the market. Furthermore, emphasis must be placed on drawing up regulations in Norway that are in line with what is commonly applied internationally.

Acquisition rules should be more flexible
It is Norges Bank's view that the authorities, through both the formulation of the regulations and practice, should be less restrictive with regard to preventing structural changes and adaptations which the industry itself deems appropriate. Unnecessary restraints on the institutions' freedom of manoeuvre could contribute to weakening their profitability and financial soundness in the long term.

Norges Bank supports the Commission's proposal to allow acquisitions provided prior acceptance is acquired from at least two-thirds of the owners. This would avoid a situation whereby a small minority could block acquisitions that are supported by a very clear majority of shareholders. Moreover, such a change may contribute to promoting necessary structural changes.

Furthermore, Norges Bank supports the Commission's proposal to allow ownership shares corresponding to 30 per cent of the capital or votes in financial undertakings to be owned by another financial undertaking as part of a strategic alliance between undertakings. It is important that the regulations provide for necessary flexibility and that they do not prevent co-operation or alliances, provided that this is not anti-competitive, among other things. As the Commission proposes a relaxation of the rules referred to above, Norges Bank will support the proposal to maintain the statutory ownership limit of 10 per cent as a main rule.

Capital adequacy rules for insurance companies should be evaluated more closely
Norges Bank supports the minority proposal to revise the rules on capital adequacy for insurance companies. The Banking Law Commission was mandated to harmonise as far as possible the rules for various groups of institutions. A simplification of the regulations must, however, take into account the particular features of the industry. If the activity is not the same, Norges Bank is of the view that the regulations do not necessarily have to be the same.

If the distribution of risk in life insurance companies is evaluated in isolation, there is a strong case for withdrawing the capital requirement peculiar to Norway without any consequences for the financial soundness of the institutions. However, Norges Bank is of the view that the issue of capital adequacy requirements applying to insurance companies should be examined as part of an overall evaluation in connection with the Banking Law Commission's next report.

Cross-ownership rules should be relaxed
Norges Bank is of the opinion that a number of adjustments should be made to the deduction rules for cross-ownership between financial undertakings. Credit institutions and insurance companies play different roles in the financial market and this is reflected among other things in different possibilities for investing in equity instruments. In May 1998, insurance companies' access to investing in equity instruments was increased from 20 to 35 per cent of total assets, and investments in shares and primary capital certificates account for a growing percentage of their total assets. Cross-ownership rules will increasingly place limitations on life insurance companies' capital management. Norges Bank is therefore of the view that insurance companies should be exempt from the requirement to deduct from their capital ownership interests in other financial undertakings which exceed 10 per cent of their own capital.

Furthermore, Norges Bank would argue in favour of a further adaptation to international regulations. The deduction requirement applicable to all financial institutions concerning ownership interests in other financial undertakings should thus be raised from the current limit of 2 per cent to ownership interests that exceed 10 per cent of the capital in the recipient institution.

Conversion of savings banks should be permitted
Norges Bank supports the Commission's majority proposal to allow savings banks to convert into private limited companies or public limited companies. The arrangement would be voluntary.

Member of Norges Bank's Executive Board Lars Velsand supports the minority of the Commission, which is opposed to allowing savings banks to convert into limited companies.