Today, Norges Bank has published Financial Stability Report 2018. Among other topics, the Report points to the three key vulnerabilities in the Norwegian financial system:

• Household debt ratios are high and rising.
• House prices are high, even after the price fall in 2017.
• Commercial property prices have risen further from already high levels.

Nearly half of banks' exposures to Norwegian corporates are to commercial real estate. Losses on commercial property loans have been low in normal times, but high during crises, both in Norway and other countries.

"Banks that use internal models to calculate capital requirements should give substantial weight to crisis-related loss data when calculating risk weights on commercial property loans", says Deputy Governor Jon Nicolaisen.

Banks need to draw down their countercyclical capital buffer and a portion of the other buffers in order to maintain lending in the event of a pronounced downturn in the Norwegian economy. In such a situation, a reduction in buffer requirements may reduce the procyclical effects of tighter bank lending.

"The stress test in this report suggests that a larger portion of the total buffer requirement should be time-varying", says Nicolaisen.