Document Type

Case Study

Case Series

Broad-Based Emergency Liquidity

JEL Codes

G01, G28


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.

Date Revised