Document Type

Case Study

Case Series

Central Bank Swap Lines


By 2008, the Icelandic banking system had become so large and heavily exposed to foreign liabilities that the Central Bank of Iceland (CBI) lacked sufficient foreign reserves to serve as a credible lender of last resort. During the first quarter of 2008, the CBI, in an effort to bolster reserves, began soliciting other central banks for swap agreements, the first of which was Danmarks Nationalbank. On May 16, 2008, Danmarks Nationalbank, Norges Bank, and Sveriges Riksbank agreed to bilateral swap facilities in which the CBI could borrow euros against Icelandic krona for a maximum of EUR 1.5 billion (USD 2.3 billion), or EUR 500 million from each Scandinavian central bank. Though the arrangement was intended to be precautionary, the CBI could draw upon the swaps if necessary to preserve financial stability. On October 14, 2008, one week after Iceland’s three largest banks failed, the CBI drew EUR 200 million from each of the swap lines with Danmarks Nationalbank and Norges Bank, using the proceeds to secure trade in essential goods. These drawings helped bridge to an eventual International Monetary Fund (IMF) support package for Iceland, which was finalized on November 19, 2008. On November 3, 2008, Norges Bank announced an extension of its bilateral swap line with the CBI, and on November 20, following the IMF agreement, Danmarks Nationalbank and Sveriges Riksbank also extended their swap lines with the CBI from the end of 2008 through the end of 2009. By the end of 2008, the CBI’s drawings on the swap lines totaled EUR 450 million, split evenly among the three Scandinavian central banks. The CBI repaid these borrowings by the end of 2009.