The Norwegian government and the Norges Bank presented two targeted initiatives to lift confidence in the financial market. The Government will issue bonds worth 350 billion kroner that would provide collateral for funding operations of banks.
The Norges Bank will offer liquidity loans of two-year maturity targeted at smaller banks. Prime Minister, Jens Stoltenberg said the authorities are prepared to take necessary steps to maintain confidence in the Norwegian banking system.
The Ministry of Finance said in a report released over the weekend that though the Norwegian banks are fundamentally strong, their funding situation has deteriorated. The Norges Bank has increasingly provided liquidity through central bank instruments due to the drying up of regular sources of funds.
The Ministry of Finance decided to set up the special facility with an objective to facilitate continued financing from the market. In its report, the Ministry said it will submit a proposal to the Storting or Parliament on October 17, asking for an authorization to issue Government Bonds for this purpose of up to 350 billion kroner. The Ministry will propose that the facility be established by November 1.
Finance Minister, Kristin Halvorsen said the swap facility would make it easier for banks operating in Norway to fund themselves.
The banks could surrender covered bonds, including bonds issued by a mortgage association within the bank group. The facility would be made available against a market-based premium. The facility would be administered by the central bank on behalf of the Ministry of Finance.
After a coordinated rate cut by major central banks on October 8, the Norges Bank had decided to hold its regular Executive Board meeting on October 15 and not to wait until the planned monetary policy meeting on October 29. The central bank will assess the interest rate at its meeting on October 15.
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