Norway To Provide $55.4Bln In Liquidity To Its Banks

October 12, 2008 4:22 p.m. EST

Oslo, Norway (AHN) - The government of Norway and its central bank, Norges Bank, on Sunday announced that it will offer as much as $55.4 billion (350 billion kroner) in government bonds in collateral for mortgage debt of the country's commercial banks.

The move by the authorities is in a bid to aid the financial institutions to shore up their balance sheets and to restore confidence in the Norwegian banking system.

Norges Bank will help the government with the provision of liquidity in the form of fixed or F-loans of two year maturity, which will be mainly targeted at smaller banks.

"The Norwegian authorities are prepared to launch the measures necessary to secure confidence in the Norwegian banking system," Prime Minister Jens Stoltenberg said in a statement released on Sunday.

"Norwegian banks are affected by the turmoil in the international financial markets. Even if the Norwegian banks are fundamentally strong their funding situation has deteriorated."

The bonds will be made available to the banks for periods of up to three years against collateral, the government said. The firms may have to surrender covered bonds, such as, bonds issued by a mortgage association within the bank group.

"As regular sources of funding has been drying up Norges Bank has increasingly provided liquidity through central bank instruments," he added.

The facility, administered by Norges Bank, will plan for bi-weekly auctions "as long as there is a demand for such government bonds."

On Oct. 17, the Ministry of Finance is expected to send the proposal for an approval from the country's Parliament to issue government bonds. The facility is expected to be established by Nov. 1.