FAQs on funding for lending programmes
The Riksbank offers funding to banks of up to SEK 500 billion against collateral to stimulate their lending to companies operating in Sweden. In this way, the Riksbank is helping companies to meet the financial challenges resulting from the pandemic. If you run a company and have questions about loans, you should contact your bank.
How the Riksbank’s funding for lending works
1. The Riksbank offers loans to banks against collateral at an interest rate set at the repo rate (current zero per cent). The aim is to facilitate banks’ lending to non-financial corporations, including sole proprietors.
2. If banks do not increase their lending to these companies, they must pay additional interest to the Riksbank.
3. Companies can apply to banks for loans, which may alleviate the financial challenges caused by the coronavirus pandemic.
Does the Riksbank lend money directly to companies?
The Riksbank lends money to banks, i.e. our monetary policy counterparties. Banks can then lend money to companies.
Why isn’t the Riksbank lending money directly to companies?
The Sveriges Riksbank Act (1988:1385) stipulates the Riksbank’s mandate, which is decided on by the Swedish Parliament, the Riksdag. According to the Act, the Riksbank must receive “adequate collateral” when it lends money. This is because the Riksbank is an authority and must not take excessive financial risks.
The Riksbank functions as the banks’ bank. Put simply, this means that, when necessary, we provide banks with money at a particular interest rate and these funds can then be passed on into society as loans. Therefore, banks themselves decide which companies can receive loans, and at what interest rate. Riksbank can influence banks’ willingness to lend money, but not force them to do so.
In times of crisis, direct government support to companies may be necessary, for instance, credit guarantees and reduced taxes and charges. Such decisions are made by the Riksdag and the Government within the scope of fiscal policy, and not by the Riksbank, which is responsible for monetary policy.
How much interest will companies have to pay to banks?
Banks pay the equivalent of the repo rate, which is currently zero, on loans from the Riksbank. It is then up to the banks themselves to determine what interest rate companies will pay. The interest rate banks charge to companies is based on what banks pay for the money and what supplement they add on. However, the Riksbank's decision means that banks’ cost for the money is currently zero.
Do banks decide who has the right to the loans and what does this process look like?
The Riksbank’s decision means that banks are offered an interest rate equivalent to the repo rate, which is currently at zero per cent, on loans from the Riksbank, if they can later prove that they have passed the money on to companies. If a bank does not increase its lending to companies, it must pay a slightly higher interest rate to the Riksbank. It is therefore the individual bank that ultimately determines exactly which companies will have access to the current loans.
Why don’t banks lend more of the money that the Riksbank is prepared to provide to them?
Whom it lends to is ultimately the bank’s decision. the Riksbank’s role is to ensure that there is liquidity in the market so that solvent companies do not need to go bankrupt due to a lack of liquidity.
Where do the SEK 500 billion come from?
The Riksbank can create money not only by issuing banknotes and coins but also by issuing electronic money in Swedish kronor (SEK) to banks, and this is what the Riksbank has now done.
When the Riksbank lends money to banks, a debt to the general public is created but at the same time, the Riksbank receives assets, such as government securities and other bonds, from banks as collateral. This increases the Riksbank’s balance sheet.
A central bank cannot just create money as it likes. If too much money is created, it may lead to rising prices (inflation), but if too little is created, it may instead lead to falling prices and lower activity in the economy.
Banks say they have liquid assets to lend; why is more money needed?
This measure should be regarded as an insurance against a shortage of money in banks hampering their credit supply to companies.
The Riksbank’s task is therefore to ensure that there is liquidity in the market so that solvent companies do not need to go bankrupt due to a lack of liquidity.
How is it ensured that only “robust” companies receive subsidised loans?
Ultimately, the individual bank decides which companies it will lend to. The Riksbank is not able to, and should not be able to, determine this. The purpose of the measure is to bridge over a potential shortage of money in the banking system that could become a problem during a difficult period for companies that were robust prior to the current crisis and can be expected to be robust again when the economy returns to normal.
Who will bear the counterparty risk in the money being lent?
Banks take the counterparty risk.
My bank is not one of your monetary policy counterparties, how can my company access the loans?
To begin with, only banks that were the Riksbank’s existing monetary policy counterparties could access the loans. But since 30 March 2020, Swedish credit institutions under the supervision of Finansinspektionen that were not monetary policy counterparties before have been able to apply to become temporary monetary policy counterparties in order to access the Riksbank’s funding for lending. Read more on the page Temporary monetary policy counterparties.
What shall a bank do to participate in the Riksbank’s lending?
To participate in the Riksbank’s lending, banks shall register no later than two days before an auction procedure takes place. If the bank has not registered, it cannot access the money but it can take part in the next auction procedure.
Why isn't my bank a monetary policy counterparty?
A bank should fulfil the requirements laid down in the Master Document for Terms and Conditions for RIX and Monetary Policy Instruments that can be found on the Riksbank’s website or the requirements for becoming a Temporary Monetary Policy Counterparties. However, why an individual credit institution that fulfils the requirements chooses to be or not to be a monetary policy counterparty is a question the Riksbank is unable to answer.
My bank is a monetary policy counterparty but says it will not offer these loans, why is that?
All monetary policy counterparties are offered the opportunity to take part in the funding programme. The bank itself determines whether it wishes to – or does not wish to – participate in the Riksbank’s funding programme.
Does the Riksbank set requirements as to how companies may use the loans?
No, the Riksbank does not set any requirements for how companies may use these loans. The Riksbank only sets the requirement that banks must use the money to increase their lending to companies.
Why doesn't the state/the Riksbank bear the risks for the loans?
The Riksbank bears the risk for the loans to banks (the Riksbank’s customers) but it is up to banks to make credit risk assessments of their customers. The Riksbank has eased the requirements for collateral that we normally impose on loans to banks. This means that the Riksbank is taking on some of the risk in these loans. The Government has also established a corporate loan guarantee programme, a kind of “corporate ER”. Through this guarantee programme, the state takes on most of the risk associated with lending to companies that are being hit financially by the coronavirus but are otherwise viable. The National Debt Office offers the guarantee to credit institutions that in turn issue guaranteed loans to companies. Read more about the corporate loan guarantee programme on the National Debt Office website.
What does the decision to include lending to sole proprietors mean?
There are a number of companies run as sole proprietorships that are not categorised as non-financial corporations in the statistics and were therefore not originally included in the programme. In a sole proprietorship, the company and its owner are the same legal entity. The company’s corporate registration number is the same as the owner’s personal identity number. These are referred to in the statistics as entrepreneurial households. The Riksbank decided on 6 April 2020 to extend the programme so that lending to sole proprietors was equated with lending to other non-financial corporations. As before, however, the bank itself decides which companies can access the loans.
Does registration imply an obligation to start reporting lending to companies?
A registration to participate in the programme does not mean that the counterparty must start to report its lending to non-financial corporations. The obligation to report lending only starts to apply once the counterparty has submitted a bid and received an allocation, i.e. the month when the Riksbank disbursed the loan to the counterparty. If the counterparty is subject to the Riksbank’s provisions on the reporting of credit (KRITA), the Riksbank may exempt the counterparty from reporting.
Are there two different lending programmes?
Yes, there are two different programmes. The programme launched in March 2020 had terms that were not suitable for long-term application. In March 2021, the Riksbank therefore decided to launch a revised programme. The basic aim is the same, to support banks’ lending to non-financial corporations. Among other changes, the maturity periods for the loans have been adjusted in the new programme. In addition, the Riksbank has decided to change the method for evaluating whether banks have increased their lending to non-financial corporations to a sufficient extent. Loans from the Riksbank are still available to banks under the old programme. Banks can borrow under the new programme if they so wish. In other words, there may be loans under both programmes running in parallel.