The extension of the list of eligible assets the Riksbank accepts as collateral has now been made permanent, which should mean that liquidity in the Swedish banking system is good. For a Swedish bank to choose to bear the cost of placing large surpluses in its deposit account at the Riksbank would assume that lending money on the interbank market was assessed to be a poorer alternative. One reason for this could be a fear that the bank wanting to borrow would not be able to repay in time, or at all. Another reason could be that the bank with a surplus was unwilling, or unable for some reason, to provide loans requiring capital cover in accordance with capital adequacy rules and therefore chose to deposit the money at no risk in the Riksbank. Normally, however, there would be very little risk of this happening - firstly, Swedish banks have good solidity and secondly they are so few in number that they have a good knowledge of one another. BIS Review 80/2001  3  The Riksbank also has the opportunity - in situations where the financial system faces a risk of serious disruption - to provide loans at special terms to a bank that for some reason experiences such unexpectedly large deficits in its payments during the course of a day that the bank is unable to offer sufficient already approved collateral to borrow from the Riksbank at normal terms. However, the condition is that the bank is considered by the Riksbank to be sound.
The Riksbank has a crisis organisation to enable it to make rapid decisions in this type of situation. The banks' lending is important Another reason why the banks are particularly interesting in monetary policy terms is that lending from the banks plays an important role for the impact of monetary policy interest rate changes. If the Swedish banks for some reason reduce the supply of credit, companies and households cannot fully replace this loss with financing for consumption and investment elsewhere. Smaller companies are particularly dependent on the Swedish banks and the customer relations they have built up. Larger corporations, on the other hand, have access to other sources of financing, such as borrowing in the bond market, from foreign banks or via new share issues. The banks' supply of credit and their setting of interest rates can therefore influence how quickly and how much monetary policy affects activity in the economy and thus inflation. We can begin by stating that the repo rate is one important determining factor when the banks decide on their lending rates. When the lending rates are determined, the bank's own internal rate is crucial and it is normally determined by the repo rate. This is because the banks' financing of deficits and investment of surpluses arising at the end of the day can normally be done in the interbank market, where pricing depends on the repo rate. If a bank lends money to a company, the loan could be financed in the interbank market.