The Riksbank may provide general liquidity support to counteract serious disturbances in the financial system in Sweden in the form of credits in Swedish and foreign currencies against adequate collateral.
Possible recipients of these credits 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.
Collateral includes, for example, liens in financial instruments and pledges of claims on the Riksbank or other central banks. In crisis situations, the Riksbank may also have to accept less secure and less liquid assets as collateral. To achieve the requirement for adequate collateral, the Riksbank may instead demand more collateral for a given credit amount, that is make a haircut.
The other conditions for the credit (for example, volumes, interest rates and maturity) are not regulated more precisely by the Riksbank, but determined 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 credits and the Riksbank’s collateral requirements are therefore adjusted to control such effects.
Before deciding to grant credits to counter serious disruptions, the Riksbank may also 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 grant credits to counter serious disruptions, 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 providing credit for monetary policy purposes.