Document Type

Case Study

Case Series

Central Bank Swap Lines


Danish banks faced substantial losses on loans to the slowing construction sector in the run-up to the Global Financial Crisis (GFC) of 2007–09. The acceleration of the crisis in 2008 raised funding costs and froze foreign funding markets for Danish banks. The Danish central bank, the Danmarks Nationalbank (DN), responded by injecting liquidity and seeking to reassure bank counterparties about the soundness of the financial system. In October 2008, the DN established a swap agreement with the European Central Bank (ECB) under which it could receive up to EUR 12.0 billion (USD 16.8 billion) in exchange for Danish krone. The swap line helped the DN provide euro liquidity to financial institutions in Denmark without having a negative impact on its foreign exchange reserves. At its peak, the DN had EUR 5.9 billion in ECB swaps outstanding under the swap line. The ECB signed similar agreements during the GFC with the central banks of Japan, the United Kingdom, and several other European countries outside the euro area. These swap lines are now backed by standing agreements and have become an “integral part of the ECB stabilization toolkit” and enhance the ECB’s role as “regional lender-of-last-resort” as per a VoxEU column in 2021 by Albrizio et al. The DN also established a swap agreement with the Federal Reserve to receive up to USD 15.0 billion in dollars during the GFC.