Riksbank urges banks to test borrowing from lending facilities

Riksbank Governor Erik Thedéen urged monetary policy counterparties to ensure their operational capacity and readiness to borrow from the central bank.

Speaking at the Stockholm International Banking Crisis Management Conference, Thedéen emphasised that the Riksbank's lending facilities and market operations should be regarded as a natural part of banks' daily liquidity management.

To ensure banks can borrow quickly and efficiently when needed, the Riksbank is now recommending counterparties to voluntarily test their operational capacity by conducting test transactions.

Banks can borrow any amount from the Riksbank's lending facilities against eligible collateral, including Riksbank Certificates.

The central bank is also considering introducing mandatory test transactions in the future to further solidify this operational readiness.

The amount of liquidity in the Swedish banking system is falling as the Riksbank's holdings of Swedish securities continue to decline.

This places greater demands on banks' ability to lend to one another on the overnight market, and their capacity to borrow from the Riksbank when necessary.

The Riksbank has already taken steps to increase borrowing incentives, including lowering the interest rate in the supplementary liquidity facility and removing the limit on covered bonds as collateral.

The central bank will follow up on these measures and is considering further actions, such as lowering the interest rate on the standing deposit facility, to strengthen incentives for interbank lending.