Collateral for loans
- How often is the list of approved securities updated on Norges Bank's website?
The list is updated twice a day, at 5:10 a.m. and at approximately 3:00 p.m.
- Do banks need to submit an application form to obtain approval of new securities?
As a rule, an application is not required to obtain approval of new securities as collateral. The bank may pledge securities directly in the central securities depository in the agreed securities accounts. Norges Bank's systems will verify whether the security satisfies the terms and conditions. If an application is required, Norges Bank will contact the bank. An application must nevertheless be completed if a bank wishes to pledge new asset backed securities (ABSs) or new funds units that are not on the list of already approved securities.
- How should the values in the list of pledged/approved securities be interpreted?
See explanation on the approved securities page.
- Which alternative market places have been approved for securities pledged in VPS?
The Alternative Bond Market (ABM) on Oslo Børs has been approved as an alternative market place for listing securities pledged as collateral for loans.
- Which prices does Norges Bank use to value pledged securities?
The collateral value of a security is established on the basis of the security's market value.
Norges Bank receives quoted prices from Oslo Børs and from Interactive Data. The Bank also receives synthetic prices from Interactive Data. A market price or synthetic price is valid as long as it is not more than 21 days old. For securities in NOK that are pledged in VPS, a price is also calculated by Norges Bank's systems. If there is more than one valid price, either the market price or the synthetic price is chosen, whichever is lowest. If only one market price or synthetic price is available, the calculated price is also used in the assessment, and the lowest price is chosen as the market value.
If Interactive Data is unable to provide a price for a security with a floating rate, Norges Bank will use the nominal value with an additional haircut. Further information in this regard can be found in the current guidelines.
- How are the prices calculated?
Norges Bank's calculation is based on the present value of all future payments. Norges Bank calculates a so-called "dirty price", which includes accrued interest. In the market, bonds are quoted at the "clean price". This price is lower than the "dirty price" because accrued interest is not included. The prices calculated by Norges Bank are referred to as "calculated prices". The prices calculated by Interactive Data are referred to as "synthetic prices".
- Can bonds with options be pledged as collateral for a loan?
Only ordinary bonds and notes may be approved as collateral. As a rule, Norges Bank will classify securities with call and/or put options as ordinary securities, but the securities may have other features that disqualify them. Call and/or put options alone will normally not disqualify a security as collateral. For a security with a call option in the period to maturity, the option price will serve as a ceiling for the calculated price.
- Why does the bond have a price that is exactly equal to 100?
In most cases, this is because the security has been valued at a calculated price where a call option has set a limit of 100 for the calculated price. For securities in NOK with a call option, the option price between the current date and the maturity date serve as a ceiling for the price that Norges Bank uses in its price calculation. For the calculated price to be 100, the initial price must be calculated at over 100, and there must be a call option with an option price of 100 prior to maturity. Another reason for a price of 100 may be that a trading price or synthetic price was provided that with the addition of accrued interest totals 100.
- Why does Norges Bank sometimes refuse to accept bonds with good liquidity and a high credit rating?
In some cases, Norges Bank has to refuse bonds for technical reasons. One example is a bond for which adequate price information is not supplied.
- Why do Norges Bank's calculated prices differ from market prices and the prices calculated by banks?
This is due primarily to two factors:
1) Norges Bank's calculation of a bond's value is based on the present value of all future payments. This results in a so-called "dirty price" which includes accrued interest. In the market, bonds are quoted at the "clean price".
2) Norges Bank does not take individual credit risk or liquidity risk when calculating prices. Benchmark rates are used for different types of securities. The result may be that the calculated price for some securities is too high or low price compared with trading prices. A calculated price is assigned a lower priority when the price is selected and is considered only if there is no accepted market and synthetic price.
Can units in funds that use foreign exchange and interest rate derivatives in their fund management be pledged as collateral for loans?
The use of derivatives in securities funds is subject to Regulation No. 800 of 8 July 2002 relating to securities funds' derivatives transactions. According to the Regulation, the fund's articles of association must indicate which derivatives the fund uses and whether the use of derivatives increases, reduces or has no effect on risk in the fund. The Regulation also specifies that foreign exchange derivatives may only be used to hedge foreign exchange risk. Units in a fund may be eligible as collateral if the derivatives are used solely to reduce risk and/or to contribute to more effective fund management. For any new fund to be considered, an application must be submitted along with the fund's articles of association before units can be pledged.
Can securities that are part of repurchase agreements be used as collateral for loans from Norges Bank?
Securities that are part of repurchase agreements may be used as collateral for loans from Norges Bank if the securities otherwise meet the collateral requirements. Securities may not be used to complete the repurchase agreements while they are pledged as collateral.
Why does some new collateral result in an almost immediate increase in the credit limit, while other collateral takes longer?
If the security is already approved, or satisfies the requirements of the automatic approval process, the collateral will be approved as soon as Norges Bank receives electronic information from the central securities depository. If the security must be assessed for approval, this process can take longer if manual classification and/or an assessment is required before it can be approved. In some cases, it can also take time to obtain information regarding the security, even if the security is subsequently approved automatically.
What are the system's opening hours and when will transactions be processed?Norges Bank's system for managing collateral is open for receipt of automatically processed transactions during the opening hours of Norges Bank's settlement system (NBO) (5.35 a.m. - 4.30 p.m.). An electronic instruction to release collateral for same-day execution will be processed if received during opening hours. Orders with a future date will be executed after the NBO opens on that date.
On banking days, instructions for pledging a new security will be processed on receipt. In such cases, the central securities depository's opening hours will limit the ability to move securities holdings to the pledged account. An increase in the credit limit resulting from a new pledge of securities received outside opening hours can take place no earlier than when NBO opens on the following business day. Assessments of new securities requiring manual verification will take place during staffed opening hours. If additional information needs to be submitted/obtained, a longer processing time must be expected.
Why has the haircut been changed for some covered bonds as part of the transition to the new system for collateral for loans?
Previously, the extended maturity date was used for covered bonds registered in VPS with static data from Stamdata. As part of the transition to the new system, this has been changed to the expected maturity date. Securities that with this change have transitioned to another time interval to maturity have received a lower haircut.