Norges Bank is currently making changes in its system solutions for settlement bank functions, including systems for transactions with banks. In this context, changes are being made in the rules and routines for payment on maturity and redemption of securities furnished as collateral for loans in Norges Bank.

For securities registered in VPS, these payments are at present made by VPS to Norges Bank through NICS retail netting, normally in the morning netting. Reduction of the borrowing limit for matured and redeemed securities takes place in the morning of the maturity/payment date. If the collateral is not pledged, the money is transferred to the bank’s settlement account in Norges Bank.

The new routine for these payments will imply that payment takes place directly into accounts in the pledging banks in question. The money will then be available to the banks after the settlement of the NICS morning netting on payment day, given that the matured or redeemed security is not pledged. As part of this change, Norges Bank will reduce the bank’s borrowing limit the day before maturity or redemption of a security.

The change implies a more direct transaction path for settlement of matured and redeemed securities. If the collateral is not pledged, the settlement amount will be sent directly to an account in the pledging bank, whereas at present the money is sent via the bank's account in Norges Bank. In this connection, Norges Bank brings a reminder that banks are also responsible today for ensuring that pledged securities that mature, or are redeemed, are not pledged on payment day.

If the collateral is pledged on payment day, Norges Bank will transfer the amount being disbursed to an account held by Norges Bank in a private bank. Such a situation will be treated as an overdrawal of the bank’s settlement account in Norges Bank. In the event of such an overdrawal, the bank in question will be charged a fee of NOK 10 000. Once the collateral is no longer pledged, it will be made available to the pledging bank.

The rule relating to reduction of the borrowing limit applies irrespective of whether the pledge is registered in VPS or a foreign securities depository. The payment routines will not be changed for securities registered in foreign securities depositories.

The changes will be made in three stages:

1. The rule about reduction of borrowing limits from the start of the day on the payment date will be implemented on Monday 4 June 2007. However, the money disbursed will continue to be sent directly to accounts for this purpose in Norges Bank.
2. When Norges Bank has opened accounts in private banks, payments in connection with maturity and redemption will be sent to these accounts. Norges Bank will then check whether the collateral is pledged. If the collateral is not pledged, the money will be transferred to accounts in the pledging banks. It is intended implementing this change in the second half of 2007. Banks must inform Norges Bank in writing which account is to be used for such payments, by 15 June 2007. Notification should be sent in the form of a letter to Norges Bank, Interbank Settlement Department, Banking Section.
3. The third change will take place when VPS has changed its systems so that disbursing accounts can be changed right up to the day before payment date. When this change has been made, banks will receive payments directly into accounts in their own bank after settlement of the NICS morning netting. Reduction of borrowing limits will then take place from the start of the day on the day before the payment date. This change is expected to be implemented in spring 2008.

The dates for the last two changes will be announced in a later circular.