When the changes in Finansforetaksloven (Financial Institutions Act) enter into force on January 1, 2019, Norwegian authorities will have a new regulatory framework for dealing with failing banks.

The Norwegian Parliament decided in March 2018 new regulations for resolution of banks. With the new regulations in Financial Institutions Act chapter 20 the authorities can use resolution tools that ensure continuity of the bank's critical functions, without taxpayers having to bear the costs. The legislative amendments are based on the EU Bank Recovery and Resolution Directive (BRRD). The regulation also applies to credit institutions and investment firms that are subject to the minimum requirement for initial capital in the Securities Trading Act, as well as parent companies in financial groups that comprise such enterprises. 


During the international financial crisis in 2008 several failing European banks received state funds to support their continued operations. The BRRD is designed in such a way that the investors, rather than the taxpayers, are to bear the losses when a bank is experiencing financial problems in the future.

Resolution or liquidation

If a bank fails, the authorities can either decide to liquidate it, or to resolve the bank to ensure continuity of its critical functions. An important factor in the assessment is whether liquidation of the bank will pose a threat to financial stability.

New resolution methods

The legislative changes imply that the authorities have more powers and tools with several methods for dealing with failing banks. A key method in the new regulatory framework is the use of bail-in. The bank’s losses will with this method be distributed according to ordinary bankruptcy procedures. This entails that subordinated capital and certain types of debt are written down as far as necessary to cover losses, and thereafter converted into new equity so that the bank's financial position is restored. Guaranteed deposits are excluded from write-downs.

Establishment of Resolution financing agreement 

The changes in Finansforetaksloven (Financial Institutions Act) also includes the establishment of a new fund, called the Resolution fund, that will be used to finance resolution measures in the future. The Financial Supervisory Agency (FSA) as the resolution authority will have the disposal of the fund, while the Norwegian Banks’ Guarantee Fund shall manage the fund. At the time of establishment, the fund will receive 55 percent of the funds in the present Norwegian Banks' Guarantee Fund. Further capitalization will take place through contribution payments from banks and credit institutions. The size of the contributions shall be calculated using a risk-based model and depends, among other things, on the size, complexity and business model of the institution. Large and complex banks will, due to their importance for financial stability, have to pay a greater share of the contribution to the fund.