Market operations

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

F-loans

Norges Bank supplies reserves to the banking system by providing F-loans to banks. An F-loan is a loan extended against collateral in the form of securities.

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. 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. The maturity on F-loans is determined by Norges Bank and varies depending on the projection of structural liquidity.

F-deposits

Norges Bank reduces the quantity of reserves in the banking system by providing banks with F-deposits. As in the case of F-loans, the interest rate is normally determined by multi-price auction. Banks submit bids for a desired amount and interest rate. 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. The maturity on F-deposits is determined by Norges Bank and varies depending on the projection of structural liquidity.

Only banks with access to Norges Bank’s standing facilities (see below) have access to participating in F-loan and F-deposit auctions.

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 fixed-rate loans (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 22 May 2015 15:26