Consultation response: Clearer legislation on Riksbank financing is positive
News, Consultation responses The Riksbank welcomes the possibility of requiring credit institutions to hold interest-free deposits in the Riksbank and has no objection to the obligation to make a submission to restore equity in the event of insufficient equity instead becoming a possibility. Nor does the Riksbank have any objection the legislative text regulating the conditions for restoring equity is clarified, however the Riksbank proposes certain amendments regarding how unrealised gains should be taken into account, and how the requirement for interest-free deposits is formulated. This is stated in the consultation response to the Ministry of Finance's consultation memorandum "New conditions for the Riksbank's funding".
Important to ensure that the Riksbank has sufficient capital
"The Riksbank supports the clarifications regarding the restoration of equity included in the consultation proposal, but we propose certain changes to ensure that the Riksbank always has sufficient equity", says Governor Erik Thedéen.
The Riksbank´s view is that unrealised gains should not be taken into account when the Riksbank considers whether a submission for restoration of equity may be made. If unrealised gains have to be taken into account in that assessment, it could lead to equity being low or even negative as long as these gains are sufficiently large. In such circumstances, the Riksbank needs to be able to consider making a submission to restore equity so that the Riksbank's ability to fulfil its tasks is not jeopardised.
The Riksbank also proposes that it should be possible to restore equity to the target level not only to ensure the Riksbank's long-term self-financing capacity, but also to ensure the capacity to bear financial risks that arise when the Riksbank performs its tasks.
Interest-free deposits strengthen the Riksbank
"The possibility of requiring credit institutions to hold interest-free deposits with the Riksbank provides conditions for better earnings. It will strengthen the Riksbank capacity for self-financing, without having any significant negative effects, either for financial stability or for the implementation of monetary policy. With the Riksbank's proposed adjustments, the design of the deposit requirement will be more efficient and the Riksbank's ability to finance itself will be further strengthened," says Mr Thedéen.
The Riksbank therefore proposes that it should be possible to set the interest rate on the deposit requirement at a minimum of 1 percentage point below the policy rate when the policy rate is zero or negative and that interest-bearing reserve requirements should not be taken into account when calibrating the size of the deposit requirement. The Riksbank also proposes that it should be possible to exempt certain smaller credit institutions from the requirement for interest-free deposits, and that it should be possible to fulfil the deposit requirement by investing in debt instruments issued by the Riksbank.