Counterparties who need to borrow money from the Riksbank must provide collateral in exchange. There follows an overview of the collateral that the Riksbank accepts.
See Terms and Conditions for RIX and Monetary Policy Instruments for more detailed information.
One of the Riksbank’s tasks is to supply liquidity to the financial system. However, this shall be conducted in a way that does not involve the Riksbank risking its capital. The Riksbank therefore has to take collateral that is sufficiently adequate to prevent this risk. The Riksbank sets requirements that must be met for a security to be approved as collateral and determines how this collateral is to be valued.
The Riksbank sets the same requirements for the collateral that can be used to access intraday credit in the RIX payment system as for the collateral accepted for lending in the supplementary liquidity facility. For lending in the standing lending facility, more strict collateral requirements are applied.
Read more: Collateral for credit at the Riksbank
Why do the Riksbank’s collateral requirements look the way they do?
So that the Riksbank shall not risk its capital, the probability that collateral will significantly lose value needs to be very small. Assets provided as collateral must therefore have a very high credit rating. Collateral is mainly comprised of various types of Swedish or foreign securities with high credit ratings. In the Riksbank’s assessment, those countries whose debt instruments are accepted as adequate collateral shall be considered to be comparable with Sweden as regards protection for investors, among other things. The types of securities accepted are specified in the Terms and Conditions for RIX and Monetary Policy Instruments. To a certain extent, foreign currency can also be used as collateral. For such currency to be considered adequate, it is required to be in an account in a central bank approved by the Riksbank.
Another precondition for collateral to be considered adequate is the existence of a secure arrangement through which the Riksbank receives collateral in the asset in question. The Riksbank must determine how its connection to the securities depository in which the collateral is stored shall be arranged for this to be considered secure. The requirements for this are described in the Terms and Conditions for RIX and Monetary Policy Instruments.
The Riksbank’s collateral is valued at market value. But for the collateral to be adequate, the Riksbank must take account, during valuation, of the possibility that the value may decrease due to price changes or changes in exchange rates. The Riksbank therefore makes deductions from the market price when valuing collateral to cover for potential price risk and foreign exchange risk (haircut).
If the collateral pledged at the Riksbank consists to a large degree of a single asset type, the Riksbank faces a concentration risk. To reduce this concentration and thereby improve diversification, limitation rules can be applied. For example, structural risks and vulnerabilities linked to securities of a certain kind can justify the application of limitation rules. Such rules are applied to covered bonds in the manner described in the Terms and Conditions for RIX and Monetary Policy Instruments.
The different types of security that the Riksbank accepts are placed into three different liquidity categories. An extra haircut may be made if the valuation prices the Riksbank has access to are not up-to-date.