Erik Thedéen: The banks should regularly test their operational capacity to borrow from the Riksbank

Banks and other monetary policy counterparties need to ensure that they have the operational capacity and readiness to borrow money from the Riksbank, emphasised Governor Erik Thedéen when he took part in a panel discussion at the Stockholm International Banking Crisis Management Conference. 

“The Riksbank’s monetary policy counterparties shall regard the Riksbank’s lending facilities and market operations as a natural part of their daily liquidity management. To ensure that banks can borrow from the Riksbank quickly and efficiently when needed, we are considering introducing mandatory test transactions, but as a first step, our counterparties are now recommended to voluntarily test their operational capacity by borrowing from the Riksbank.”

The banks can test their operational capacity by borrowing any amount from the Riksbank’s lending facilities against eligible collateral. Riksbank Certificates can be used as collateral for loans in the Riksbank’s standing lending facility.

The amount of liquidity in the Swedish banking system is falling as the Riksbank’s holdings of Swedish securities continue to decline. This places greater demands on the banks’ ability and willingness to lend to one another on the overnight market, but also on their ability to borrow from the Riksbank if necessary.

The Riksbank has already lowered the interest rate in the supplementary liquidity facility and removed the limit on the proportion of covered bonds that may be used as collateral for loans from the Riksbank. These measures aim to increase the banks’ incentives to borrow from the Riksbank.

“The Riksbank will follow up that the monetary policy counterparties take the necessary measures to adapt to the declining liquidity in the banking system. We are also considering other measures, such as lowering the interest rate on the Riksbank’s standing deposit facility, to strengthen the incentives for the banks to borrow from one another in the overnight market.

If any monetary policy counterparties have questions about the test transactions, you can contact the Riksbank by telephone at 08-696 6970 or e-mail at info.motparter@riksbank.se.