Circular 7/2009

Revised Lending Regulation enters into force on 17 April 2009

On 25 February 2009, Norges Bank adopted the revised Regulation on the Access of Banks to Borrowing and Deposit Facilities in Norges Bank etc. (The Lending Regulation). The Regulation enters into force on Friday, 17 April 2009 in conjunction with the introduction by Norges Bank of a new settlement system (NBO). The Regulation of 25 April 2001 No. 473 on the Access of Banks to Borrowing and Deposit Facilities in Norges Bank etc. is repealed with effect from the same date.

The background to the changes in the Lending Regulation is that Norges Bank no longer uses certain of the provision relating to the exercise of monetary policy. Moreover, the Lending Regulation has been adapted to reflect certain functional changes in the new settlement system, see Circular No. 6/16 April 2009.

The main changes to the Regulation are as follows:

  • The provision on limits on the interest-bearing deposits of the banks has been repealed.
  • The provision under which Norges Bank may buy back F-deposits from the banks has been repealed.
  • Detailed provisions relating to the auctioning of the F-loans and F-deposits have been removed from the Regulation. Norges Bank announces the applicable procedures at the time of each auction.
  • The rules under which the access of banks to borrowing facilities may be restricted on the basis of their total assets or capital base have been repealed. The availability of borrowings to a bank is determined on the basis of the value of the collateral furnished by the bank.
  • The provision on the calculation of interest has been amended so that interest is capitalised daily.

Moreover, a number of provisions have been introduced concerning collateral for borrowings. It has inter alia been made clearer that Norges Bank may require a bank to increase its collateral if the size of the bank’s borrowings and accrued interest exceed the loan value of the collateral.

The revised Lending Regulation is attached.

Regulation on the Access of Banks to Borrowing and Deposit Facilities in Norges Bank etc.

Legal authority: Adopted by Norges Bank on 25 February 2009 pursuant to Act No. 28 of 24 May 1985 on Norges Bank and the Monetary System etc. (The Norges Bank Act), Section 19, second paragraph and Section 20.

Section 1.     Scope 
The Regulation concerns the access of banks to overnight loans (D-loans), loans with fixed terms (F-loans), ordinary deposits and deposits with fixed terms (F-deposits) in Norges Bank.

Banks means commercial and savings banks headquartered in Norway and branches established in Norway by banks and credit institutions headquartered in other states.

The Regulation also applies to banks and credit institutions permitted to market and provide services in Norway from an established place of business in some other EEA state which have not established a branch in Norway (cross-border activities).

Section 2.     D-loans
 D-loans means loans raised by the bank during the day and overnight.

Intraday D-loans are raised during the opening hours of Norges Bank’s settlement system and repaid before the system closes in the evening. Overnight D-loans are in force from the closing of the settlement system in the evening and until the system re-opens on the next banking day.

D-loans are furnished against collateral in accordance with the provisions of Section 9. The borrowing limit is equivalent to the value of the pledged assets less the reduction in value stipulated by Norges Bank.

Interest accrues only on overnight D-loans. Interest is calculated in accordance with the rules provided for in Section 4.
      
Section 3.     Sight deposits
Banks may place sight deposits with Norges Bank. Intraday deposits do not attract interest. Overnight interest is calculated in accordance with the rules provided for in Section 4.

Section 4.  Interest rate and calculation of interest on sight deposits and D-loans
Norges Bank sets the interest rate on sight deposits and D-loans.

The rate of interest on sight deposits and D-loans is calculated daily in arrears. Interest is calculated on the basis of calendar days. Interest is calculated for 365 days per year.

The interest on D-loans is charged to the bank’s account on the first settlement day after the loan is raised. If the first day and any subsequent days in a month is/are not (a) banking day(s), the interest for the said day(s) will be charged on the second settlement day in the new month.

Interest on deposits is credited to the bank’s account on the first settlement day after the deposit is placed with Norges Bank. If the first day and any subsequent days in a month is/are not (a) banking day(s), the interest for the said day(s) will be paid out on the second banking day in this month.

Section 5.     F-loans
F-loans are loans by Norges Bank at a fixed or floating rate of interest and for a fixed term. The borrowing bank cannot repay the F-loan before the due date of the loan.

F-loans are furnished against collateral in accordance with the provisions of Section 9 and in other respects on the terms and in accordance with the procedures stipulated by Norges Bank.

Section 6.    F-deposits
F-deposits are deposits with Norges Bank at a fixed or floating rate of interest and for a fixed term. Norges Bank does not repay the F-loan before the maturity date of the deposit.

The banks may place F-deposits with Norges Bank on the terms and in accordance with the procedures stipulated by Norges Bank.

Section 7.    The issuance and allotment of F-loans and F-deposits
For each issue Norges Bank decides whether an F-loan or F-deposit will be issued at a rate of interest determined in advance or by ordinary or Dutch auction.

In the case of F-loans, collateral shall be furnished in accordance with the provisions of Section 9 when bids are made.

In the case of auctions, F-loans or F-deposits are allotted after the bid or bids that together with all higher bids make up the amount which is to be allotted or called in.

In the case of ordinary auctions, the interest bid by each individual bidder is paid or received.

In the case of Dutch auctions, all bidders pay or receive the same interest. In the case of F-loans this is the lowest accepted interest. In the case of F-deposits this is the highest accepted interest.

Bids are binding. Norges Bank may reject any bid.

Section 8.    Interest rate and calculation of interest on F-loans and F-deposits
The interest on F-loans or F-deposits with floating rates of interest is paid at the time stipulated by Norges Bank. The interest on F-loans and F-deposits with fixed rates of interest is paid in arrears. Interest is charged or credited to the individual bank’s current account with Norges Bank.

Section 9.    Collateral for D-loans and F-loans
Norges Bank may approve the following assets as collateral for loans:

a)  bonds and short-term paper,
b)  units in collective investment undertakings registered in a Norwegian securities register,
c)  F-deposits with Norges Bank,
d)  deposits with other central banks.

In special cases Norges Bank may accept other assets as collateral or waive the collateral requirement.
Norges Bank may attach additional requirements to assets in order for them to be approved as collateral for borrowings, including requirements as to:

a)  nominal currency
b)  minimum outstanding volume,
c)  credit rating,
d)  stock exchange listing or listing on some other approved marketplace,
e)  registration in an approved securities register, and
f)   time to maturity or withdrawal. 

Norges Bank may require a bank to increase its collateral if the size of the bank’s borrowings and accrued interest exceeds the loan value of the collateral. In such cases Norges Bank may also utilise the bank’s sight deposit with Norges Bank as collateral. Sight deposits used as collateral will attract interest in accordance with the rules provided for in Section 3 and Section 4.

Norges Bank may lay down additional rules on the valuation and reduction in value (haircut) of pledged assets.  

An overview of assets approved by Norges Bank as collateral and the rules on valuation and reduction in value can be found on Norges Bank’s website. The same applies to requirements stipulated by Norges Bank pursuant to the third paragraph of this provision.

Section 10. Cross-border activities
Banks and other credit institutions headquartered in other states and conducting cross-border activities in Norway as described in Section 1 may raise intraday D-loans and place intraday and overnight deposits in Norges Bank. The deposits do not attract interest.    

Banks and credit institutions as provided for in the first paragraph do not have access to overnight D-loans and may not raise F-loans or place F-deposits in Norges Bank.

Norges Bank may require branches of banks headquartered outside the EEA to present confirmation that no legal risk attaches to the collateral furnished by the bank for loans from Norges Bank.

Section 11.  Limitations in and the suspension of the access to loans
Norges Bank may limit or suspend access to loans if:

a)  there has been a breach of this regulation or other loan conditions,
b)  a bank has received, applied for or is assumed to require loans on special terms pursuant to Section 19 third paragraph of the Norges Bank Act,
c)  indicated by the financial position of a bank, or
d)  indicated by the financial situation of a credit institution engaged in cross-border activities in Norway.

Section 12. Commencement
This Regulation enters into force with effect from the time determined by Norges Bank.

The Regulation of 25 April 2001 No. 473 on the access of banks to borrowing and deposit facilities in Norges Bank etc. is repealed from the date on which this Regulation enters into force.

 

Published 23 April 2009 10:00