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Document Type

Case Studies

Abstract

During the interbank market freeze following the Lehman Brothers collapse in September 2008, Denmark’s central bank, Danmarks Nationalbank, used a series of unconventional monetary policy instruments to increase market liquidity. One such action included the introduction of the excess-capital temporary credit facility, also known as the solvency scheme. Under this facility, credit lines from Danmarks Nationalbank could be provided to banks and mortgage-credit institutions on the basis of their excess capital adequacy, calculated as the difference between their base capital and their capital need. The purpose of this facility was to ease the tight liquidity situation by providing access to credit directly from Danmarks Nationalbank, thus aiding the liquidity of banks with adequate capital but insufficient assets that are eligible as collateral. The program ran from September 26, 2008, to February 26, 2011, after being extended twice. The facility effectively assisted some banks with their statutory liquidity requirements, and few banks had to draw on their credit lines throughout the duration of the program.

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