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Frequently asked questions

FAQ – Financial turbulence

  1. Is my money safe in the bank?
    Deposits of up to NOK 2 million per depositor per bank in Norwegian commercial and savings banks are guaranteed by the Norwegian Banks’ Guarantee Fund. Membership of the Guarantee Fund is compulsory for all banks with their head office in Norway. Deposits by private individuals and businesses are guaranteed on equal terms.
  2. Is it safe to have money in foreign banks in Norway?
    As is the case for Norwegian-owned banks, membership of the Norwegian Banks’ Guarantee Fund is compulsory for foreign-owned subsidiaries in Norway. Foreign-owned subsidiaries are authorised and supervised by the Norwegian authorities. Norwegian branches of foreign banks based in an EU/EEA country may also apply for membership in the Norwegian Guarantee Fund. The Norwegian Fund would then guarantee deposits up to NOK 2 million minus the amount guaranteed by the home country’s guarantee scheme. The Norwegian Banks’ Guarantee Fund
  3. Why are banks raising their interest rates on loans to their customers even though Norges Bank has not increased the key policy rate?
    Banks obtain funding from many sources. Funding via the market has become more expensive. This results in higher interest rates in credit and money markets, which can also feed through to interest rates for banks’ customers.
  4. Why isn’t Norges Bank reducing the key policy rate?
    Norges Bank is monitoring developments closely and continuously assessing the need for measures.
  5. What does it mean when Norges Bank supplies liquidity to banks?
    Norges Bank offers banks loans against collateral. Banks that participate in Norges Bank’s market operations have pledged securities that they use as collateral when they borrow from Norges Bank.
  6. How does Norges Bank supply liquidity?
    Norges Bank primarily supplies liquidity through F-loans, but also when necessary through foreign exchange agreements (FX swaps). When banks borrow NOK through an FX swap, they pledge foreign currency as collateral. Norges Bank has supplied NOK against collateral in both US dollars and euros.
  7.  What are fixed rate loans (F-loans)?
    F-loans are the primary means of supplying liquidity to the banking system. F-loans are loans extended against collateral in the form of pledged securities with a fixed rate of interest and a specified maturity. Maturities for F-loans will vary depending on the liquidity situation in the banking system. Interest rates on F-loans are determined by auction. Banks submit bids for the desired amount and at the interest rate they are willing to pay.  Norges Bank determines the total amount to be allotted. The banks’ bids are ranked in descending order according to the rates submitted. Bids within the total amount will be allotted to banks in the amount and at the rate submitted in their bid.
  8. What are foreign exchange swaps?
    Norges Bank can use foreign exchange agreements (FX swaps) to supply krone liquidity to Norwegian and foreign banks. FX swaps can be used if sufficient liquidity cannot be supplied by the central bank via F-loans. FX swaps can also be used to provide loans to Norwegian banks in a foreign currency (normally US dollars). In an FX swap, banks pledge NOK as collateral. Liquidity supplied in a foreign currency is reserved for extraordinary situations and is based on an assessment of the stability of Norwegian financial markets and the Norwegian payment system.
  9. Why does Norges Bank extend loans in US dollars to Norwegian banks?
    The prices quoted by banks in the Norwegian money market are based on similar loans being available in US dollars at an observable price. It has in periods been difficult for banks to borrow in US dollars in the market. Norges Bank has therefore extended loans in US dollars to Norwegian banks.
  10. Why is Norway borrowing money from the US?
    Norges Bank and the Federal Reserve (the US central bank) have agreed on a USD 15 billion swap facility. This means that Norges Bank can borrow US dollars from the Federal Reserve using Norwegian kroner as collateral. The agreement provides Norges Bank with even more room for manoeuvre in dealing with the turbulence in financial markets up to and including the first quarter of 2009.
  11. Is Norges Bank planning to offer assistance to Iceland?
    This issue is a matter for the political authorities.
  12. Can what has happened in Iceland happen in Norway too?
    No, the Icelandic banks have grown to very large proportions over the past few years, and they have done this by expanding rapidly abroad. Norwegian banks are not engaged in activities abroad to any extent.
  13. How does Norges Bank cooperate with other central banks?
    Norges Bank engages in extensive communication with other central banks in the ongoing assessment of the situation in international money and financial markets. Norges Bank has agreed on a USD 15 billion swap facility with the Federal Reserve (the US central bank).
  14.  Why do other countries’ problems have such an impact on Norway?
    Capital markets are international. Problems in one country can quickly spread to other countries. A substantial portion of Norwegian banks’ funding is in foreign currency, and the interest rate – the price of money – has increased internationally.
  15. What is the money market rate?
    The money market rate, or NIBOR (Norwegian Inter Bank Offered Rate), is the interest rate banks charge each other for loans (interbank loans). Money market rates are determined by supply and demand in the money market.
  16. Why are money market rates rising even though Norges Bank is extending loans to banks?
    Banks obtain funds from many sources, and only a small portion of their funding is in the form of loans from Norges Bank. Funding in capital markets has become more expensive. Banks have also become more reluctant to lend to each other, and this pushes up money market interest rates.
  17. What will Norges Bank do if a Norwegian bank goes bankrupt?
    The Guarantee Schemes Act lays down rules for procedures to be followed if a bank encounters payment or capital adequacy difficulties. If no solution is found to enable the bank to continue its operations, the bank will be placed under public administration. If this situation arises, the Ministry of Finance, Kredittilsynet (Financial Supervisory Authority of Norway), the Norwegian Banks’ Guarantee Fund and Norges Bank will work closely together to find the best possible solution. Norges Bank’s actions with regard to the payment and settlement system in the event a bank is placed under public administration are set out in Circular no. 4/2006 “Handling in NBO of a bank under public administration”.
  18. How much money can Norges Bank actually lend to banks? Does Norges Bank have access to an infinite amount of money?
    In principle, Norges Bank can supply unlimited liquidity to banks by allowing banks to borrow from Norges Bank. Norges Bank requires collateral for these loans. 
  19. Can any bank borrow money from Norges Bank?
    All banks in Norway can have an account at Norges Bank, which entitles them to borrow or deposit money at the central bank. Banks can borrow money against securities pledged as collateral. See Collateral for loans on our website. 
  20. Why doesn’t Norges bank lower the liquidity requirements for banks so that banks can borrow more money from Norges Bank?
    Temporary changes have been made in the guidelines for pledging securities as collateral for loans in Norges Bank. See Circular no. 3/2008. The changes can increase banks’ access to loans from Norges Bank.
     

     

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