Opening of liquidity window and discontinuation of special temporary collateralised loan facility due to COVID-19
At its most recent meeting, the Central Bank of Iceland Financial Stability Committee (FSN) decided to recommend that the Bank open a liquidity window to which its counterparties will have access in case they experience an unexpected, temporary need for liquidity that could affect financial stability. Thus, this does not represent conventional liquidity provision for monetary policy purposes.
In accordance with the FSN’s decision, counterparties will be authorised, from 12 January 2022 onwards, to take 14-day collateralised loans at an interest rate 0.5 percentage points above the Bank’s seven-day collateralised lending rate. Interest rates on loans in the liquidity window will be variable, and based on Central Bank rates at any given time. It will be possible to apply for the loans on Wednesdays, the regular weekly transaction days for Central Bank facilities. Central Bank counterparties may apply for a loan of up to 5 b.kr. versus collateral included in the Bank’s list of assets deemed eligible as collateral for Central Bank facilities. Counterparties will be prohibited from taking loans if they simultaneously hold term deposits with the Bank. It will not be possible to apply for a new loan before the previous loan has matured.
At the same time the liquidity window is opened, the special temporary collateralised loan facility established at the beginning of the COVID-19 pandemic – cf. the 8 April 2020 statements from the Financial Stability Committee and the Monetary Policy Committee – will no longer be offered. Furthermore, the Temporary Provision laid down in Rules no. 345/2020 amending the Rules on Central Bank of Iceland Facilities for Financial Undertakings, no. 1200/2019 (in Icelandic), which was adopted in connection with the two Committees’ statements, shall expire. At the same time, amendments are made to Article 10 of the Rules as regards financial collateral arrangements for Central Bank facilities. It will still be possible to use specified loan portfolios as collateral, subject to a haircut, as well as other assets included in the Central Bank’s list of eligible collateral, in order to secure collateralised loans in the liquidity window.
Further information will be contained in the terms and conditions to be sent to Central Bank counterparties.
Press release no. 1/2022,
14 January 2022