Market operations

Norges Bank uses market operations to steer bank reserves towards a desired level, primarily using F-loans and F-deposits.

F-loans

F-loans are the instrument primarily used to supply liquidity to the banking system.

F-loans are issued at a floating rate and specified maturity against collateral in the form of securities. The maturity of F-loans is determined by Norges Bank and varies depending on liquidity in the banking system. The interest rates on F-loans are normally determined by multi-price auctions. In a multi-price auction, also referred to as an American auction or an ordinary auction, banks submit bids for a desired amount and interest rate. For F-loans, the interest rate bids that banks' submit must be equal to or greater than the sight deposit rate on the auction date. Norges Bank decides the aggregate amount of the allotment. The banks' interest rate bids are ranked in descending order. Banks that place bids within the aggregate amount will be awarded an amount at the interest rate submitted. If a bank receives an allotment for more than one bid, the interest rate will be a volume-weighted average of the interest rates submitted. If the sight deposit rate changes during the operation's time to maturity, the banks' allotment yield will be adjusted accordingly, from the same date that the sight deposit rate changes.

F-deposits

Norges Bank reduces the quantity of reserves in the banking system by providing banks with F-deposits. The maturity on F-deposits is determined by Norges Bank and varies depending on the projection of structural liquidity. As in the case of F-loans, F-deposits have a floating interest rate that is normally determined by multi-price auction. Banks submit bids for a desired amount and interest rate. For F-deposits, banks must bid an interest rate that is equal to or lower than the sight deposit rate on the auction date. Norges Bank decides the aggregate amount of the allotment. The banks' interest rate bids are ranked in ascending order. Banks that place bids within the aggregate amount will be awarded an amount at the interest rate submitted. If a bank receives an allotment for more than one bid, the interest rate will be a volume-weighted average of the interest rates submitted. If the sight deposit changes during the operation's time to maturity, the banks' allotment yield will be adjusted accordingly, from the same date that the sight deposit rate changes. 

F-loan and F-deposit auctions

Fine-tuning operations

Normal market operations are undertaken when the projection indicates that reserves will deviate from the desired level. In addition, Norges Bank will, if deemed appropriate, consider undertaking market operations late in the day after the last settlements enter Norges Bank settlement system (NBO). Such operations are referred to as fine-tuning operations.

Other instruments

Foreign exchange swaps

Norges Bank can use foreign exchange swaps to supply krone liquidity to Norwegian and foreign banks. Foreign exchange swaps can be used in addition to F-loans. Foreign exchange swaps can also be used to supply liquidity in foreign currency to Norwegian banks. Maturities for foreign exchange swaps vary and depend on the liquidity situation in the banking system.

Prices for foreign exchange swaps are normally determined by means of multiple-rate auctions. Banks submit bids for the desired amount and the price they are willing to pay. Norges Bank determines the total amount of liquidity to be allotted. The banks' bids are ranked and allotments are made until the total amount is reached. Amounts are allotted to banks at the price submitted in their bid.

Unlike for F-loans and F-deposits, banks that do not have access to Norges Bank's standing facilities, including foreign banks, can participate in foreign exchange swap agreements.

Foreign currency loans

Norges Bank can provide loans in foreign currency against collateral. Opposite of foreign exchange swaps, loans in foreign currency provides liquidity to the banks without affecting the amount of krone liquidity in the interbank market. Foreign currency loans were used during the financial crisis in 2008 and 2009.

During the financial turmoil in 2008 and 2009, Norges Bank implemented a series of measures to improve the liquidity of banks in Norway. These measures included:

  • F-loans against collateral in securities
  • Increasing krone liquidity through foreign exchange swaps
  • Foreign currency loans

An overview of the results of these measures is provided in the attached spreadsheet.

Published 3 July 2011 22:01
Edited 15 November 2017 11:25