Entering into repurchasing agreements

The Riksbank may provide general liquidity support to counteract serious disturbances in the financial system in Sweden by entering into repurchase agreements. A repurchase agreement is a contract for the purchase or exchange of financial instruments with a simultaneous agreement that the purchase or exchange will be reversed at a certain later date.

Possible counterparts in these repurchasing agreements are financial companies that are under the supervision of Finansinspektionen, foreign financial companies that are subject to similar supervision in their home countries and that operate from branches in Sweden, and Swedish and foreign central counterparties that operate in Sweden.

The Riksbank may accept all types of financial instruments in repurchasing agreements provided that, after any haircuts, they represent adequate collateral.

The conditions in other respects for the repurchase agreements are determined by the Riksbank according to the circumstances of the specific situation. As financial crises are extraordinary situations, it is not appropriate to specify the conditions more precisely in advance. For the measures to be effective, the Riksbank must consider and balance many different aspects. In addition to the short-term objective of supporting the financial system, the long-term effects need to be considered. Excessively generous measures may lead to undue favour for certain agents and increased risk-taking in the market. The pricing of the repurchase agreements is therefore adjusted to mitigate such effects.

Before deciding to enter into repurchasing agreements to counter serious disruptions, the Riksbank may need to obtain the approval of the European Commission and carry out a proportionality assessment. Risk-taking in the context of a financial crisis may be compatible with the principle of proportionality, given the high socio-economic values at stake. Ahead of any decision to enter into a repurchase agreement with the aim of countering serious disruptions in the financial system, the Riksbank shall also as a general rule give Finansinspektionen and the Swedish National Debt Office an opportunity to comment.

In the event of financial unease or crisis, the Riksbank also has the possibility of entering into repurchase agreements for monetary policy purposes.

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Updated 02/01/2023