Krone liquidity was provided through currency swap agreements, both in euros and US dollars. We also proposed the covered bond swap arrangement and a capital injection of core capital from the government to banks. 2  Walter Bagehot (1873), “Lombard Street: A description of the Money Market”. 3  Norges Bank’s automatic borrowing facility for banks is referred to as D-loans. The interest rate on overnight D-loans is one percentage point higher than the key policy rate and forms a ceiling for short-term money market rates. 2  BIS Review 119/2009  The Norwegian monetary policy measures have been effective Before the crisis the daily surplus liquidity in the Norwegian market of about NOK 20 billion was sufficient to keep short-term money market rates near the key policy rate. From autumn 2008, Norges Bank has supplied ample liquidity, bringing bank deposits in Norges Bank to well above NOK 100 billion in periods. The substantial supply was necessary to prevent short-term money market rates from rising too high above the key policy rate or from fluctuating widely. Risk premiums at shortest end of the money market fell. Through the currency swap agreements, under which Norwegian kroner were offered in exchange for US dollars or euros, we reached participants who were active in Norwegian kroner but who did not have access to loans from Norges Bank. The currency swap agreements helped to limit the risk premiums in Norwegian interest rates. Norwegian banks are dependent on US dollar liquidity, which was on occasion difficult to procure in the market.
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