350 billion Kroner Government Bond Swap Facility

The Government and Norges Bank present two targeted initiatives to enhance confidence in the financial market. Through the issuance of government bonds amounting to 350 billion kroner the Government will provide collateral that may be used in banks’ funding operations. Norges Bank will on its side provide liquidity loans of two year maturity targeted at smaller banks. Norwegian authorities are prepared to implement necessary measures to maintain confidence in the Norwegian banking system, says Prime Minister Jens Stoltenberg.

Norwegian banks are affected by the turmoil in the international financial markets. Even if the Norwegian banks are fundamentally strong their funding situation has deteriorated. As regular sources of funding has been drying up Norges Bank has increasingly provided liquidity through central bank instruments. In order to facilitate continued financing from the market the Ministry of Finance has decided to establish a special facility where it offers government bonds to the banks against collateral. The Ministry of Finance will on Friday 17 October 2008 submit a proposal to the Storting (Parliament) asking for an authorization to issue Government Bonds for this purpose of up to 350 billion kroner. The Ministry will propose that the facility is established by 1 November.

The swap facility will make it easier for banks operating in Norway to fund themselves, says Finance Minister Kristin Halvorsen. This measure has been developed in close cooperation between the Ministry of Finance and Norges Bank, and is supplemented by a two year lending facility which is designed to suit smaller banks.

The bonds will be made available to the banks for periods of up to three years against collateral. Banks may surrender covered bonds, including bonds issued by a mortgage association within the bank group. The facility will be made available against a market based premium. There will, however, be a floor price on the premium. The facility will be administered by Norges Bank on behalf of the Ministry of Finance. It is planned for bi-weekly auctions as long as there is a demand for such government bonds.