Document Type
Case Study
Case Series
Broad-Based Emergency Liquidity
JEL Codes
G01, G28
Abstract
As the Global Financial Crisis spread, liquidity strains appeared in Norwegian money markets, limiting banks from accessing high-quality and long-term financing. In response, on October 24, 2008, the Norwegian government authorized a Norwegian krone (NOK) 350 billion (USD 50 billion) covered bond swap program to be operated by Norges Bank, the central bank, on behalf of the Ministry of Finance. Under this program, Norwegian commercial banks, savings banks, and, later, mortgage companies could exchange certain covered bonds, known in Norwegian as obligasjoner med fortrinnrett (OMFs), for treasury bills. Pricing was determined in an auction. In each auction, Norges Bank set a minimum interest rate at a discount or premium to NIBOR, the interbank market rate. During 24 auctions throughout 2008-09, Norges Bank swapped NOK 230 billion in treasury bills for OMFs. As the liquidity positions of the banks improved, Norges Bank gradually implemented a premium to participate in the program and closed the facility permanently in December 2009. The swap program led banks to increase their funding through OMFs, often by creating new mortgage company subsidiaries. It also generated a NOK 5.5 billion profit for the government, according to a banker’s estimate.
Recommended Citation
Fulmer, Sean
(2022)
"Norway: Covered Bond Swap Program,"
Journal of Financial Crises: Vol. 4
:
Iss. 2, 949-968.
Available at:
https://elischolar.library.yale.edu/journal-of-financial-crises/vol4/iss2/43
Date Revised
2022-06-15
Included in
Economic Policy Commons, Finance and Financial Management Commons, Macroeconomics Commons, Policy Design, Analysis, and Evaluation Commons, Policy History, Theory, and Methods Commons, Public Administration Commons