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Temporary liquidity support for banks
The fundamental principle of a resolution procedure is that the bank’s shareholders and creditors – not taxpayers – continue to fund the bank. However, during a transitional phase, the bank may have difficulty obtaining sufficient liquidity on its own. In that case, the Debt Office and the Riksbank are able to grant temporary liquidity support.
The Debt Office can provide liquidity support by granting credits to, or issuing guarantees for, a bank in resolution or a bridge institution. Guarantees can be provided so that the bank is able to borrow funds in the capital market, or as security for loans from the Riksbank. Such support is financed with funds from the resolution reserve. This ensures that resolution can be carried out without taxpayers having to bear the cost.
The Debt Office is authorised to issue guarantees for up to SEK 200 billion without needing a decision from the Riksdag. The Debt Office also has the right to borrow funds up to SEK 100 billion from the central government if the funds in the resolution reserve are not sufficient – also without a decision from the Riksdag.
The Riksbank is entitled to provide liquidity support to banks in crisis as well.