Sweden's Riksbank recommends voluntary test transactions to verify counterparties' access to its lending facilities

The Riksbank has recommended that banks and other monetary policy counterparties voluntarily conduct test transactions to ensure they can borrow quickly and efficiently from its lending facilities. In remarks by Governor Erik Thedéen at the Stockholm International Banking Crisis Management Conference, the Riksbank linked the recommendation to falling liquidity in the Swedish banking system as its holdings of Swedish securities decline, which increases the need for banks to manage liquidity more actively and use the overnight market and central bank facilities when needed. Counterparties can test their operational capacity by borrowing any amount from the Riksbank against eligible collateral, and Riksbank Certificates can be used as collateral in the standing lending facility. A related Financial Stability Report article said several counterparties still do not actively use the overnight market or the Riksbank's lending tools, noting that since 2020, 14 counterparties have never participated in the overnight market, 9 have no collateral with the Riksbank and 14 have never borrowed in the lending facility. The Riksbank has already lowered the rate on the supplementary liquidity facility and removed the limit on the share of covered bonds that may be used as collateral for loans from the Riksbank. The Riksbank said it will follow up whether counterparties take the necessary steps to adapt to declining system liquidity and is considering making test transactions mandatory. It is also considering other measures, including lowering the rate on the standing deposit facility, to strengthen incentives for banks to borrow from one another in the overnight market.