Svante Öberg: Monetary policy, financial stability and the Riksbank's
balance sheet
Speech by Mr Svante Öberg, First Deputy Governor of the Sveriges Riksbank, at the Lund
University, School of Economics, Stockholm, 1 December 2009.
* * *
Introduction
The Riksbank has for just over a year now taken forceful action to limit the negative
consequences of the financial crisis. Using the Riksbank's balance sheet as a starting point, I
shall explain today what we have done.
The Riksbank's assignments are to maintain price stability and to promote a safe and
efficient payment system. These two assignments result in two main tasks for the Riksbank -
monetary policy and financial stability - two tasks that are interlinked. A stable financial
system is necessary to conduct effective monetary policy and price stability is part of an
efficiently-functioning payment system.
During the financial crisis and the ensuing economic downturn the link between the two tasks
has been strengthened. The Riksbank has implemented extraordinary measures in both
areas to be able to carry out its tasks. The two tasks are also reflected in the Riksbank's
balance sheet.
I shall describe how the Riksbank has implemented monetary policy and the measures taken
to stabilise the financial sector. It is primarily through changing the terms for various items on
the balance sheet that the Riksbank has carried out its two tasks during the financial crisis. I
shall therefore first provide a general outline of the Riksbank's balance sheet structure. After
this I shall discuss in greater depth the individual items on the balance sheet, to see how
they have been affected over the past year. I shall conclude by looking ahead and discussing
the question of when and how the extraordinary measures can be phased out.
The Riksbank's balance sheet
Let us begin by looking at how the Riksbank's balance sheet looks in rough outline under
normal circumstances and at how it has changed during the crisis. The Riksbank's balance
sheet, like those of other companies and organisations, reflects the activities we conduct.
The liabilities side shows how our activities are financed and the assets side show what the
financing is used for (Figure 1).
Figure 1
The Riksbank's balance sheet
Assets Liabilities
Gold and foreign currency reserve Banknotes and coins
Lending to banks Deposits from banks
Other assets Other liabilities
Own capital
Under normal circumstances the Riksbank primarily finances itself by issuing banknotes and
coins and through its own capital. Banknotes and coins in circulation normally comprise the
largest individual item on the liabilities side. Own capital is the next largest. In addition, the
liabilities side in principle consists of deposits from banks and the item "Miscellaneous".
These items are usually small and less important than banknotes and coins and own capital.
The Riksbank's assets normally consist mainly of gold and the foreign currency reserve. The
gold reserve is a remnant of the days when banknotes and coins could be redeemed for gold
at the Riksbank. This link no longer exists and gold is now regarded purely as a financial
asset. The foreign currency reserve should primarily be used to allow the Riksbank to carry
out its tasks with regard to monetary policy and financial stability. It consists of securities in
foreign currency that are easy to sell and have a low risk.
During the financial crisis the Riksbank has increased its lending to the banks to a great
extent. As a result, the size of the Riksbank's balance sheet has increased dramatically.
Lending to the banks prior to the crisis was negligible, but during the crisis it has grown into
the most prominent item on the assets side. The increased lending in turn results wholly in
increased deposits in the Riksbank by the bank system as a whole, to which I will return
later. This has meant that deposits from the banks have become the dominant item on the
liabilities side. The Riksbank's balance sheet increased in autumn 2008 within the space of
three months from around SEK 200 billion to around SEK 700 billion (Figure 2).
Figure 2
The Riksbank's balance sheet total
SEK billion
900 900
800 800
700 700
600 600
500 500
400 400
300 300
200 200
100 100
0 0
Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09
Source: The Riksbank.
Central banks in other countries have also expanded their balance sheets. Owing to the
nature of the crisis and the structure of the financial systems in different countries, the central
banks have implemented different measures and to a different extent. However, common to
them all is the fact that their balance sheet totals increased dramatically immediately after the
US investment bank, Lehman Brothers, filed for bankruptcy in September 2008 (Figure 3).
Central banks' balance sheet totals
Percentage of GDP
30 30
The Riksbank
ECB
25 25
Federal reserve
20 20
15 15
10 10
5 5
0 0
Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09
Sources: Respective central banks.
How has the work on our two main tasks affected the Riksbank's balance sheet? Let me
begin by discussing monetary policy and then move on to financial stability.
Monetary policy
The target of monetary policy is to maintain inflation at 2 per cent. The Riksbank normally
steers the short-term interest rate to attain this target. The short-term interest rate in turn
affects other interest rates, and thereby activity and prices in the economy. The Executive
Board of the Riksbank decides on the repo rate at its monetary policy meetings. This shows
the level at which the Riksbank wants the short-term interest rate to lie. The repo rate has a
direct impact on other interest rates in the economy. I shall now describe how this works in
practice and how it is reflected in the balance sheet.
To counteract the deep recession the Riksbank has rapidly cut the repo rate to 0.25 per cent
and announced that it will remain at this low level until next autumn (Figure 4).
In normal circumstances the Riksbank can steer the short market rates without any tangible
effect on its balance sheet. This is because the banks usually turn to one another directly to
smooth deficits and surpluses in liquidity instead of turning to the Riksbank. They then pay
an interest rate that is the same as the repo rate. The repo rate thus has a direct impact on
the interbank rate and through this on short-term interest rates paid by companies and
households.
The repo rate and other interest rates
Per cent
7.0 7.0
Repo rate
Mortgage lending rate (Stadshypoteket)
6.0 6.0
6-month treasury bill
5.0 5.0
4.0 4.0
3.0 3.0
2.0 2.0
1.0 1.0
0.0 0.0
Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09
Sources: Reuters EcoWin and the Riksbank.
However, this mechanism has not functioned during the financial crisis. Banks that have had
surplus liquidity have wished to keep it available for their own use instead of lending it to
banks with a deficit. The global financial crisis has also led to the Swedish markets
experiencing problems with funding in the financial markets. During autumn 2008 the
Riksbank therefore began to offer loans at longer maturities to the bank to facilitate their
funding. As a result of this, the banks have had large liquidity surpluses and have to a great
extent invested the surplus in the Riksbank. There are several possibilities for doing so.
Firstly, the Riksbank issues Riksbank Certificates every week with a one week maturity and
at an interest rate that is the same as the repo rate decided on, that is, at present 0.25 per
cent. This assumes that the bank system - as is now the case - has a surplus and needs to
invest money. If the bank system instead has a deficit, as was the case just over a year ago,
then the Riksbank will implement what are known as repos every week with a week's
maturity. This means that the Riksbank buys securities from the banks with a simultaneous
agreement that a repurchase will be made one week later and where the interest rate is the
repo rate that has been decided.
Secondly, the Riksbank carries out what are known as fine-tuning transactions every day to
smooth the daily fluctuations in the bank system's regular payments. The banks can invest
money in the Riksbank overnight at an interest rate of 10 basis points below the repo rate,
that is, at present 0.15 per cent. This also assumes that the bank system as a whole has a
surplus towards the Riksbank at the end of the day. If they instead have a deficit, the banks
can borrow money from the Riksbank overnight at a rate that is 10 basis points above the
repo rate. The fine-tuning is normally very small, but during the crisis it has grown to entail
very large amounts.
Thirdly, there are so-called standing facilities. The banks have the right to borrow from the
Riksbank overnight at a lending rate that is 50 basis points higher than the repo rate, and the
right to invest surplus in the Riksbank at a deposit rate that is 50 basis points lower than the
repo rate. But these possibilities are very little used, as there are other alternatives that are
more advantageous for the banks.
Something that has attracted relatively great attention internationally is the fact that the low
repo rate and the application of an interest rate corridor of plus/minus 50 basis points for the
Riksbank's standing facility means that the Riksbank in principle applies a negative interest
rate for deposits in the Riksbank. In practice, this is of little significance, as only a very small
part of the banks' liquidity surplus is invested in the standing deposit facility. Instead, the
banks invest most of their liquidity surplus at a positive interest rate in the daily fine-tuning
transactions or the weekly Riksbank Certificates.
Initially, the banks invested the majority of their large surpluses in autumn 2008 in the
Riksbank as "fine-tuning". As a result of the crisis the banks had a substantial need of
immediate access to liquidity. More recently they have invested most of their surplus in the
weekly Riksbank Certificates, which is a sign that market conditions have improved
(Figure 5).
Figure 5
Riksbank Certificates and fine-tuning
SEK billion
400 400
Riksbank Certificates
350 350
Fine-tuning
300 300
250 250
200 200
150 150
100 100
50 50
0 0
Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09
Source: The Riksbank.
The fact that the increased lending results in an equal increase in deposits is due to all
transactions in Swedish kronor being made through the banks' accounts in the RIX payment
system, which the Riksbank administers. The loans are distributed in the Riksbank's auctions
by means of the banks presenting bids for how much money and at what interest rate they
want to borrow at each separate auction. Immediately after the auctions are over the money
is distributed between the banks according to the bids that have come in. The Riksbank
credits an amount corresponding to the allocation in the respective bank's account in the RIX
system. Then when the banks' transactions and payments are made during the day, the
allocation of money between the banks changes, but the money never leaves the system.
As we have already noted, the Riksbank has lent money to the banks on a wide scale since
last autumn as a result of the financial crisis. However, monetary policy motives have
gradually also gained significance in the lending. As the repo rate is close to zero and can in
practice hardly be cut further, a need has arisen to supplement monetary policy with loans at
longer maturities and at a fixed interest rate to also bring down slightly longer rates. The
Riksbank has therefore on three different occasions (in July, September and October)
offered loans of up to SEK 100 billion with a maturity of almost one year and at a fixed
interest rate, to contribute to bringing down the interest rates households and companies
have to pay. On the first two occasions the loan amount was fully subscribed, but on the
most recent occasion the amount borrowed was SEK 95 billion.
By setting interest rates on Riksbank Certificates and fine-tuning - and as we will come to
shortly - setting interest rates on the Riksbank's loans to the banks, the Riksbank has been
able to steer the short-term rate throughout the crisis.
To summarise, monetary policy has been aimed at keeping inflation close to the target and at
the same time dampening the fall in economic activity during the financial crisis. The repo
rate has been quickly cut to an extremely low level. The steering of the short-term rates has
functioned well throughout the crisis. The normal aim of only steering the shortest interest
rate has been supplemented with lending to the banks at longer maturities to be able to also
influence interest rates further out on the curve. This means that monetary policy approaches
questions regarding financial stability, which I will now discuss.
Financial stability
Financial stability is the Riksbank's other main task. Put simply, it is a question of ensuring
that the financial system is stable and that the payment system functions. The banks play a
central role in financial stability as the majority of payments go through the bank system.
The Swedish banks fund half of their borrowing through deposits from the general public and
half of it through loans from one another and on the financial markets. If problems arise that
prevent the banks from obtaining funding by borrowing from one another or on the financial
markets, they can borrow from the Riksbank. The Riksbank is what is usually known as the
lender of last resort.
Figure 6
TED spread
Difference between 3-month interbank rates and government security rates
Basis points
500 500
Sweden
450 450
Euro area
USA
400 400
350 350
300 300
250 250
200 200
150 150
100 100
50 50
0 0
Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09
Sources: Reuters EcoWin och Riksbanken.
During the financial crisis several financial markets ceased functioning. The banks'
confidence in one another declined and they became unwilling to lend to one another.
Developments during the crisis can be illustrated by, for instance, the so-called TED spread,
the difference between the interest on three-month interbank loans and three-month treasury
bills. As confidence between the banks declined, the TED spread increased during the crisis
and peaked when Lehman Brothers fell (Figure 6).
This meant that it became expensive and difficult for the banks to fund themselves. In this
situation the Riksbank began to lend money to the banks at longer maturities to secure their
funding. During three months in autumn 2008 the Riksbank increased its lending to the
banks by more than around SEK 450 billion. To begin with the Riksbank granted loans in
kronor at three-month and six-month maturities, but gradually the maturities were increased
to twelve months. Lending at a variable interest rate has declined over the past six months,
but has been supplemented by the previously-mentioned lending at a fixed interest rate of
almost SEK 300 billion (Figure 7).
Figure 7
The Riksbank's lending in SEK and USD
SEK billion
600 600
SEK, Commercial paper
USD
SEK, variable rate
SEK, fixed rate
500 500
400 400
300 300
200 200
100 100
0 0
Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09
Source: The Riksbank.
The Riksbank has also granted loans in US dollars. During the crisis there was a shortage of
dollars around the world and the banks experienced difficulty in obtaining funding in dollars.
At most, lending in dollars corresponded to around SEK 250 billion in spring 2009. Since
then the banks' interest in borrowing dollars from the Riksbank has declined. Quite simply, it
has become cheaper for the banks to borrow dollars in the market than from the Riksbank,
which is a sign that the financial markets are gradually functioning better. These loans have
now ceased.
For simplicity's sake I am talking about lending to the banks. But the correct designation for
the group of institutions which can borrow from the Riksbank is monetary policy
counterparties. Over the past year we have extended the number of counterparties who can
act as counterparts in our fine-tuning transactions and introduced a new category of
counterparties, known as restricted monetary policy counterparties, who can purchase
Riksbank Certificates and take part in the Riksbank's auctions of loans at longer maturities,
without being participants in the RIX system.1 We have also given special liquidity assistance
in autumn 2008 to Kaupthing and Carnegie, which they have since repaid.
All lending by the Riksbank is against collateral. Over the past year we have extended the
eligible assets that can be used as collateral, but this still encompasses securities that are
safe assets. The securities accepted are debt securities issued primarily by the Swedish
government and by Swedish mortgage institutions.
All increased lending by the Riksbank ends up in some form of increased deposit on the
Riksbank's balance sheet. While there can be long transaction chains, as all payment flows
in kronor go through the banks' accounts in the RIX payment system, the money never
leaves the system. It is merely moved between the banks' different deposit accounts with the
Riksbank. The Riksbank's lending in kronor to the banks has thus been entirely funded
through deposits from the banks (Figure 8).
Figure 8
The Riksbank's deposits and lending in kronor
SEK billion
400 400
300 300
200 200
100 100
lending
0 0
-100 -100
funding
-200 -200
Loans in SEK
-300 -300
Fine-tuning
Riksbank Certificates
-400 -400
Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09
Source: The Riksbank.
The interest rates on the banks' borrowing from the Riksbank, like the previously-discussed
interest rates on the Riksbank Certificates and fine-tuning transactions, are related to the
repo rate. The banks pay an interest rate that corresponds to the repo rate with a certain
premium. The banks thus pay a higher interest rate for their borrowing from the Riksbank
than they receive in interest on their deposits with the Riksbank. At the most recent auction
of loans in SEK, for instance, the interest rate was 0.40 per cent for both fixed-interest rate
loans and variable-interest rate loans. As mentioned earlier, the banks currently receive
interest of 0.25 per cent on Riksbank Certificates and for fine-tuning overnight deposits they
receive 0.15 per cent. In this way the Riksbank steers market rates by setting the interest
rates for the Riksbank's deposits and lending.
The Riksbank's lending in dollars has been funded by using the foreign currency reserve and
through loans from the US central bank. I will return to this later. The interest rate for the
dollar loans has been determined through a premium on the short-term interest rate on
dollars in the United States. The Riksbank has paid the same interest rate to the US central
bank. The Riksbank's dollar lending peaked in the spring, but has now come to an end
(Figure 9).
Figure 9
The Riksbank's lending in dollars and its funding
SEK billion
300 300
Swap agreement
Foreign currency reserve
Dollar lending
200 200
100 100
lending
0 0
funding
-100 -100
-200 -200
-300 -300
Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09
Source: The Riksbank.
The Riksbank makes a profit on the loans and deposits, through its interest rates. The total
profit for the Riksbank during the period from the beginning of October 2008 to the end of
October 2009 amounts to around SEK 2.3 billion. The fact that the Riksbank makes a profit
on its lending and deposits in kronor is not the purpose of these measures, but rather a
sideeffect. At the same time it is important to set the interest rates in a way that avoids directly
subsidising the bank system.
In addition to the Riksbank's measures the Swedish banks have received other forms of
support during the financial crisis. They have also been able to borrow from other central
banks. As part of the government's stability package, with effect from December 2008
financial institutions can apply to have their borrowing guaranteed by the government
through the Swedish National Debt Office. At present nine financial institutions have received
loans amounting to just over SEK 300 billion with such guarantees. All in all, the bank lending
supported by the Riksbank and by the Swedish National Debt Office amounted at most to
almost SEK 800 billion in July this year (Figure 10).
Figure 10
The Riksbank's lending and government-guaranteed borrowing
SEK billion
900 900
Emissions guaranteed by the Swedish National Debt Office
The Riksbank's lending
800 800
700 700
600 600
500 500
400 400
300 300
200 200
100 100
0 0
Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09
Sources: The Swedish National Debt Office and the Riksbank.
To summarise, the measures to safeguard financial stability during the financial crisis were
mainly aimed at quickly providing the banks with wide scale funding in SEK and USD. During
the crisis the Riksbank has acted in its traditional role as lender of last resort. The difference
this time, compared with the traditional role, is that it has not merely involved short-term
loans in kronor, but also lending at longer maturities and in dollars.
Gold and foreign currency reserve
The Riksbank has a substantial gold and foreign currency reserve. It consists of gold and
assets in different currencies, which can be quickly converted to liquid funds. The main part
of the foreign currency reserve consists of securities in foreign currency, with a small
percentage of bonds issued by US mortgage institutions and some Australian states. The
currency distribution up to the crisis was that half of the currency reserve was listed in euro,
20 per cent in US dollars, 10 per cent each in British pounds and Norwegian kronor and 5
per cent each in Canadian and Australian dollars. During the crisis there has been a greater
emphasis on euro and dollars.
The gold and foreign currency reserve serves three purposes. Firstly, the Riksbank has
traditionally held a gold and foreign currency reserve to be able to support the Swedish
krona's exchange rate. This was a particularly strong reason up to 1991, when Sweden had
a fixed exchange rate. But it has no major significance now that we have a floating exchange
rate and an inflation target.
Secondly, a gold and foreign currency reserve is needed to be able to provide temporary
liquidity assistance in foreign currency to banks suffering liquidity problems. During the crisis
the banks experienced problems with funding in foreign currency, particularly dollars. The
Riksbank therefore lent dollars to the Swedish banks, partly funded through the currency
reserve.
Thirdly, Sweden has international commitments through, for instance, the IMF to be able to
support other countries in crisis with loans in foreign currency. These commitments have
increased substantially during the crisis. The Riksbank has established swap agreements
with the central banks in Iceland, Latvia and Estonia, to be able to provide loans in foreign
currency to stabilise the financial situation in these countries. Moreover, the Riksbank has
increased its commitments to the IMF. All in all, international commitments have increased
by more than SEK 50 billion in connection with the crisis and they may increase further.
Prior to the financial crisis the gold and foreign currency reserve amounted to around SEK
200 billion, and then accounted for more or less all of the Riksbank's assets. The foreign
currency reserve has been strengthened this year. The Riksbank has borrowed a further
amount in foreign currency through the Swedish National Debt Office, totalling the equivalent
of around SEK 100 billion. Some of the foreign currency reserve has been lent out during the
crisis and the value in Swedish kronor has been affected by the depreciation in the krona.
The size of the foreign currency reserve has thus varied during the crisis (Figure 11).
Figure 11
Gold and foreign currency reserve
SEK billion
400 400
Foreign currency reserve
Gold
350 350
300 300
250 250
200 200
150 150
100 100
50 50
0 0
Jan--08 Apr--08 Jul--08 Oct--08 Jan--09 Apr--09 Jul--09 Oct--09
Source: The Riksbank.
The gold and foreign currency reserve the Riksbank held prior to the crisis was not sufficient
to cover the lending and the increased commitments occasioned by the crisis. During the
crisis there arose, for instance, a global shortage of dollars. To safeguard the banks' funding
in foreign currency the Riksbank - like other central banks - entered into a swap agreement
for USD 30 billion, corresponding to around SEK 200 billion, with the US central bank
(Federal Reserve) to enable it to borrow US dollars in exchange for Swedish kronor. Prior to
this the Riksbank had entered into a similar swap agreement for EUR 10 billion,
corresponding to just over SEK 100 billion, with the European Central Bank (ECB) in
December 2007, to be able to borrow euro in exchange for Swedish kronor. The Riksbank
also has the opportunity to borrow currency from the Bank for International Settlements (BIS)
in Basel (Figure 12).
Reserves including swap agreements
SEK billion
800 800
Swap agreement ECB
Swap agreement FED
700 Foreign currency reserve 700
Gold
600 600
500 500
400 400
300 300
200 200
100 100
0 0
Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09
Source: The Riksbank.
To recap, during the financial crisis the Riksbank has used measures such as swap
agreements with the ECB and Federal Reserve and borrowing through the Swedish National
Debt office to improve the scope for providing the financial sector with loans in foreign
currency and to meet its increased international commitments. All in all, the reserves
including the swap agreements have increased from around SEK 200 billion to more than
SEK 600 billion. During the crisis the Riksbank has at most lent dollars corresponding to
around SEK 250 billion.
Banknotes and coins, capital, etc.
The Riksbank has the monopoly on issuing banknotes and coins in Swedish kronor. The
volume of banknotes and coins in circulation is normally the largest item on the liabilities side
of the balance sheet. The size of this item is governed entirely by the general public's
demand for cash and it has not been significantly affected by the financial crisis (Figure 13).
Banknotes and coins are an important source of funding for the Riksbank. Cash in the form
of banknotes and coins does not accrue any interest for the holders. The general public's
holdings of banknotes and coins are entered into the Riksbank's balance sheet as an
interest-free liability. The Riksbank invests a corresponding amount, with a deduction for the
cost of managing banknotes and coins, in yield-bearing financial assets. This equivalent
amount is in practice part of the foreign currency reserve. The return the Riksbank receives
on these financial assets comprises what is known as seigniorage income. In 2008
seigniorage income amounted to around SEK 5 billion, which corresponds to a return of
4.6 per cent.
Banknotes and coins - monetary base
SEK billion
450 450
Riksbank Certificates
Fine-tuning
400 400
Banknotes and coins
350 350
300 300
250 250
200 200
150 150
100 100
50 50
0 0
Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09
Source: The Riksbank.
Another concept that has been discussed to some extent in connection with the financial
crisis is what is usually known as the monetary base. This consists of banknotes and coins in
circulation plus the banks' deposits with the Riksbank through Riksbank Certificates,
finetuning and standing facilities. During the financial crisis the banks' deposits with the Riksbank
increased substantially, as mentioned earlier, when the Riksbank increased its lending to the
banks. The monetary base has thus increased by around 300 per cent.
In simpler economic models one usually assume that there is a fixed relationship between
the monetary base and the money supply.2 The question that has been discussed is whether
the large increase in the monetary base could give rise to rapid inflation. But for this to
happen the money volume in society must also increase, that is, as well as the monetary
base increasing, the general public's deposits in the banks must increase. This could happen
if the increase in the monetary base leads to the banks increasing their credit granting to the
general public and if this in turn leads to the general public depositing more money with the
banks. In the prevailing economic downturn this has not been the case. The banks have
tightened their credit granting, while demand for credit has declined, particularly from
companies.
A more reasonable interpretation of what has happened is that the banks have increased
their demand for liquid reserves in the Riksbank. Put simply, one can say that the bank
system as a whole has borrowed as much from the Riksbank as it is willing to invest as a
deposit with the Riksbank. Thus, the ratio between the monetary base demanded and the
money supply has increased, or in other words what is known as the credit multiplier has
declined. When the situation on the financial markets normalises we expect the credit
multiplier to return to its earlier level (Figure 14).3
Figure 14
The credit multiplier
SEK billion and ratio
2500 20
Money supply M2 (left scale)
Monetary base (left scale)
18
Credit multiplier (right scale)
2000 16
14
1500 12
10
1000 8
6
500 4
2
0 0
02 03 04 05 06 07 08 09 10 11 12 13
Note. M2 consists of the general public's holdings of banknotes and coins and their
deposits in the banks on call and other deposits at longer durations. The broken line
gives an example of a possible adjustment to a normal level.
Sources: Statistics Sweden and the Riksbank.
The Riksbank's capital currently amounts to around SEK 64 billion. The return on the capital
is intended to fund the Riksbank's activities. It should also cover any losses that might arise
in the Riksbank's activities. This could be losses arising in the daily management of the
Riksbank's financial assets or when the Riksbank provides liquidity assistance to the banks.
One item on the balance sheet that has increased over the past year is the revaluation
account. This is where unrealised gains and losses are booked that comprise the difference
between the purchase value and current market value of the Riksbank's assets. As a result
of the krona having weakened and the price of gold having risen, the value of the gold and
foreign currency reserve has increased. This increase in value on the assets side
corresponds on the liabilities side to an increase in the revaluation account (Figure 15).
Figure 15
Capital and revaluation account
SEK billion
160 160
Revaluation account
Own capital
140 140
120 120
100 100
80 80
60 60
40 40
20 20
0 0
jan-08 apr-08 jul-08 okt-08 jan-09 apr-09 jul-09 okt-09
Source: The Riksbank.
The Riksbank's assets are managed to provide a good return. The return over the past
fifteen years has been around 7 per cent a year. As a result of the assets normally consisting
mainly of gold and foreign assets, the return in Swedish kronor can vary substantially from
year to year. The weakening of the krona during the financial crisis has paradoxically meant
that the Riksbank's results have improved. In addition, the Riksbank's results have been
positively affected by the lending to the banks. Some of the profits are paid as dividends to
the Treasury. A principle for allocating profits is applied to even out the dividends paid to the
Treasury. This entails 80 per cent of the average net income for the past five years,
excluding exchange rate and gold evaluation effects, being transferred to the Treasury. The
part of the profits not paid to the Treasury is transferred to the Riksbank's capital.
In addition to the items already discussed (Riksbank Certificates, fine-tuning, banknotes and
coins, capital and revaluation account), there are a number of other items on the liabilities
side of the balance sheet. The largest of these is the debt to the Swedish National Debt
Office for the loan the Riksbank has taken to reinforce the foreign currency reserve. The
other items are normally small and less important. See the appendix with Figures 17 and 18
the Riksbank's assets and liabilities.
Concluding remarks
In conclusion, I would like to refer to my introduction. The Riksbank has for just over a year
now taken forceful action to limit the negative consequences of the financial crisis. Monetary
policy has been aimed at dampening the fall in economic activity; the repo rate has been cut
to an extremely low level and supplemented with lending to the banks with longer maturities
to be able to also influence interest rates further along the curve. The measures to safeguard
financial