FAQ - The Riksbank's loans to companies via the banks
The Riksbank is offering the banks up to SEK 500 billion against collateral to stimulate the banks’ onward lending to financial companies operating in Sweden. In this way, the Riksbank will contribute to helping companies meet the financial challenges resulting from the coronavirus. If you run a company and have questions about loans, you should contact your bank.
How the Riksbank's loans to companies via the banks will work
1. The Riksbank is offering loans to the banks at a zero interest rate against collateral, on condition that these loans are passed on to companies.
2. This gives the banks access to cheap loans that increase their possibilities to lend the money onwards to companies in these turbulent time.
3. Companies can apply for loans with the banks, which may facilitate their financial challenges stemming from the coronavirus.
Is the Riksbank lending money directly to companies?
The Riksbank is lending money to the banks, or more formally to its monetary policy counterparties. The banks can then lend the money to companies.
Why isn’t the Riksbank lending money directly to companies?
What the Riksbank is and is not allowed to do is specified by the Riksdag (the Swedish Parliament) in the Sveriges Riksbank Act. At present, it is difficult for the Riksbank to lend directly to companies. This is because the Riksbank is part of the defence of the economy, and is therefore not allowed to take large financial risks. The Act states that the Riksbank must receive “adequate collateral” when lending money. Few companies are able to give this collateral in exchange for loans.
The Riksbank functions as the banks’ bank. Put simply, this means that, when necessary, we provide the banks with money at a particular interest rate and this money can then be passed on into the economy as loans. It is therefore the banks who decide which companies will receive loans, and what interest rate they will pay. A central bank like the Riksbank can influence the banks’ willingness to lend money, but we cannot 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 the banks?
The banks pay equivalent to the repo rate, which is currently zero, on the loans from the Riksbank. It is then up to the banks to determine what interest rate the companies will pay them. The interest rate the banks charge to companies depends on what the banks pay for the money and what supplement they add on. However, the Riksbank's decision means that the banks’ cost for the money is at present zero.
Is it the banks that decide who has the right to the loans and how will this occur?
The Riksbank’s decision means that the banks are offered an interest rate equivalent to the repo rate, which is currently at zero per cent, on the loans from the Riksbank, if the banks can later prove that they have passed the money on to companies. If the money stays in the banks or is used for other activities, the banks will have to pay a penalty fee. It is ultimately the banks that decide which companies receive the loans.
Where does the SEK 500 billion come from? Is it created from nothing?
Well yes, in a way. The Riksbank can create money by issuing banknotes and coins but also by issuing electronic money in SEK to banks and this is what we are doing now. Only the Riksbank can issue SEK in this way.
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 the 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.
The private 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 the banks becoming an obstacle to their credit supply to companies.
How does one ensure that only “robust” companies receive subsidised loans?
It is ultimately the banks that decide which companies they will give loans 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 banks that could become a problem during a difficult period of 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? The state or the commercial banks?
When do the banks get access to the money for onward lending?
The loan programme starts up on Friday, 20 March, with a first auction of SEK 100 billion. The times for the following auctions will be decided at monetary policy meetings, on the basis of the Riksbank’s assessment at that time of developments on the financial markets and funding needs. The amount to be offered will be determined at the same meetings.
My bank is not one of your monetary policy counterparties, how can my company benefit from these loans?
To begin with, only banks that were the Riksbank’s existing monetary policy counterparties could take out the loans. But since 30 March, Swedish credit institutions under the supervision of Finansinspektionen that were not monetary policy counterparties before have been able to apply to become temporary counterparties in order to be able to take out loans from the Riksbank for onward lending to companies. Read more on the page Temporary monetary policy counterparties.
Why isn't my bank a monetary policy counterparty?
A bank needs to 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 temporary monetary policy counterparties. However, it is not possible for the Riksbank to answer why an individual credit institution that fulfils the requirements chooses to be, or chooses not to be, a monetary policy counterparty.
My bank is a monetary policy counterparty but says they will not offer these loans, why is that?
All monetary policy counterparties are offered the opportunity to take part in the loan programme. However, the bank must register its intention to participate in an auction no later than two days in advance. If the bank has not registered, it cannot take part. A new opportunity will then arise at the next auction.
Does the Riksbank set requirements as to how the companies may use the loans?
No, the Riksbank does not set any requirements as to how the companies may use the money they borrow. We only require that the banks must use the money for onward 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 it normally imposes. This means that the Riksbank is absorbing some of the risk in these loans. The Riksbank’s responsibility is to make it easier for banks to maintain lending under the prevailing circumstances, via extra liquidity supply, such as 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 is meant by the Riksbank extending its onward lending to sole proprietors?
There are a number of companies run within the scope of sole proprietorship and which are not categorised as non-financial corporations in the statistics. They were therefore not originally included in the onward lending programme. Sole proprietorship is a company form where 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 to extend the programme so that lending to sole proprietors could be equated with lending to other non-financial corporations. But, as before, it is the banks that decide which companies they will give loans to.