Denmark's Loan Bills Temporary Credit Facility (Denmark GFC)

Abstract

The loan bills temporary credit facility was first implemented in May 2008, before the Global Financial Crisis had truly hit Denmark. It continued to be utilized as part of a broader effort to increase interbank lending after the collapse of Lehman Brothers in September 2008. The objective of the loan bills scheme was to facilitate lending among financial institutions. Each week, loan bills could be pledged as collateral for a seven-day loan from Denmark’s central bank, Danmarks Nationalbank. One banking institution could borrow from another institution by issuing a loan bill, and the institution buying the bill could raise liquidity by using it as collateral for a loan from Danmarks Nationalbank. The buying institution could also count the loan bill toward its statutory liquidity, as required by section 152 of the Danish Financial Business Act. While reports show that the program may have helped improve money market liquidity for some financial institutions, loan bills were not widely used. On February 26, 2011, the credit facility for loan bills expired.

Keywords: Denmark, loan bill, temporary credit facility

JEL Classification: G01,G28