Collateral

One of the Riksbank’s tasks is to supply liquidity to the financial system. However, this shall be conducted in a way that does not involve the Riksbank risking its capital. The Riksbank must therefore accept collateral that is adequate. The Riksbank sets requirements regarding which assets may be accepted as collateral and determines how the collateral is to be valued.

The same collateral may be used for intraday credit in the RIX settlement system and for lending under the supplementary liquidity facility. For lending in the standing lending facility, however, higher collateral requirements are applied.

Collateral that is accepted

So that the Riksbank does not risk its capital, the probability that collateral will significantly lose value needs to be very small. Assets provided as collateral must therefore have a very high credit rating.

Collateral is mainly comprised of various types of Swedish or foreign securities with high credit ratings. In the Riksbank’s assessment, those countries whose debt instruments are accepted as collateral shall be considered to be comparable with Sweden as regards protection for investors, among other things. The types of securities accepted are specified in the Terms and Conditions for RIX and Monetary Policy Instruments. 

The collateral accepted is divided into a primary and a secondary collateral pool. The primary collateral pool consists of government securities and central bank claims. The secondary collateral pool consists of other assets that the Riksbank accepts as collateral, such as covered bonds. The primary pool of collateral may be used to borrow under the standing lending facility, whilst the secondary pool of collateral is accepted in the supplementary liquidity facility.

To a certain extent, foreign currency can also be used as collateral. For a currency to be considered adequate, it is required to be in an account in a central bank approved by the Riksbank.

A precondition for collateral to be considered adequate is that there is a secure arrangement through which the Riksbank receives collateral in the asset in question. The Riksbank must therefore ensure that its connection with the custodian where the collateral is held is organised in a secure manner. The requirements for these arrangements are described in the Terms and Conditions for RIX and Monetary Policy Instruments.

If the collateral consists largely of a single asset class, this gives rise to a concentration risk for the Riksbank. To reduce this and improve diversification, so-called restriction rules may be applied. Structural risks and vulnerabilities associated with a particular type of security may, for example, justify such restrictions.

Valuation of collateral and haircuts

The Riksbank market values the collateral on an ongoing basis. As the market value may fall as a result of changes in prices and exchange rates, the Riksbank applies haircuts. In the case of securities, the size of these haircuts depends, amongst other things, on the liquidity and maturity of the security. For foreign currency, valuation haircuts are applied depending on the currency used as collateral.

The different types of security that the Riksbank accepts are divided into three liquidity classes. The liquidity class is one of the factors that determine the size of the haircut. The Riksbank may also decide to apply an additional haircut to an individual security or a specific type of security if it considers there to be grounds for doing so.