Pledging of Collateral to
Danmarks Nationalbank

Astrid Henneberg Poffet, Payment Systems

Introduction and summary

In the wake of the financial crisis attention has increasingly turned to the collateral framework for credit granted by central banks. This is because the demand for loans from central banks increases when the money markets are not functioning. Assets that are eligible as collateral for loans from central banks become more attractive and are traded at higher prices. This eligibility premium typically increases in periods of financial turbulence.

The increased focus on central banks' collateral frameworks entails a need to communicate Danmarks Nationalbank's underlying considerations when determining which assets monetary-policy counterparties may pledge as collateral for credit, i.e. the collateral basis.

Danmarks Nationalbank's collateral basis is large but comprises few asset types, given the large market for mortgage-credit bonds and covered bonds (SDOs), where the underlying legislation ensures a high credit quality.

This article explains why central banks require collateral in return for credit facilities, as well as the considerations and country-specific circumstances to be taken into account when determining the collateral basis. This is followed by an overview of Danmarks Nationalbank's rules for asset eligibility and the temporary credit facilities introduced during the financial crisis.

Background to pledging of collateral

It is common practice for central banks to require collateral when granting credit facilities to monetary-policy counterparties. ¹The primary reason is that the central bank wants to avoid credit losses. When collateral is pledged, two defaults must occur before the central bank incurs a credit loss, since both the counterparty and the issuer of the assets pledged as collateral must default on their payment obligations.² By requiring collateral, the central bank also avoids having to assess the creditworthiness of its counterparties and lay down individual terms and conditions for credit. Differentiated terms and conditions for credit facilities would be a burden to administer, and changes in the central bank's credit assessments might send unintended signals to the markets. A uniform interest rate is also essential for effective implementation of monetary policy.

Considerations when determining the collateral basis
When determining the assets that are eligible as collateral for credit to monetary-policy counterparties, central banks basically have the option of a narrow or a wide collateral basis. A collateral basis mainly comprising domestic government securities and debt instruments issued by the central bank is said to be narrow. The central bank may widen the collateral basis by including other types of assets. The overall considerations traditionally taken into account when central banks determine the size and composition of the collateral basis are outlined in Box 1.³

Considerations when defining the collateral basis

Box 1

Considerations when central banks define their collateral bases typically include some of the following:

Sufficient amount of eligible assets: supporting effective implementation of monetary policy and smooth settlement of payments by ensuring sufficient and relevant assets eligible as collateral.
Risk mitigation: minimising the risk that the central bank will incur credit losses.
Operational efficiency: minimising the operational risks and costs of handling the collateral for the monetary-policy counterparties and the central bank.
Transparency: ensuring a transparent and simple collateral framework.
Financial markets: preventing distortion of relative asset prices and market participants' behaviour.
Financial stability: contributing to the stability of the financial system.
Equality: equal treatment of e.g. issuers and counterparties (level playing field).

Source: Chailloux, Gray and McCaughrin (2008) and ECB (2007).

Danmarks Nationalbank's primary concern when laying down the rules for pledging of collateral is to keep the krone stable vis-à-vis the euro. Prior to 1999, limiting the size of the collateral basis was deemed to be a stabilising factor in relation to the fixed-exchange-rate policy. With the introduction of the current-account limits in 1999, i.e. a ceiling on the counterparties' total current-account deposits at the close of the day, a quantitative limit was set to the monetary-policy counterparties' opportunities to accumulate current-account liquidity for speculation against the krone.⁴Since then, limiting the collateral basis with the fixed-exchange-rate policy in mind has not been part of Danmarks Nationalbank's collateral framework for its credit facilities.

Moreover, Danmarks Nationalbank has traditionally taken access to sufficient amounts of eligible assets, risk mitigation, transparency and operational considerations into account when changing its collateral framework for credit facilities. In periods of financial turmoil, financial stability is also taken into consideration. Major changes to Danmarks Nationalbank's rules for asset eligibility since 1992 are listed in Box 2.

Major changes to Danmarks Nationalbank's rules for asset eligibility

Box 2

1989: Danmarks Nationalbank requires pledging of collateral for interday credit.

1992: Danmarks Nationalbank's monetary-policy instruments are adjusted and credit is granted against T-bills and, to a limited extent, other Danish government securities as collateral.

1993: The limitation on other Danish government securities is abolished.

1995-98: Transition from uncollateralised to collateralised intraday credit.

1998: The automatic collateralisation arrangement, which represents a flexible approach to pledging of collateral for intraday credit in Danish kroner, is introduced for securities trading.

1999: The collateral basis is expanded to include mortgage-credit bonds. The procedures for pledging of collateral are adjusted from repos to collateralised lending, and a common collateral pool is introduced for all types of credit from Danmarks Nationalbank.

2002: The automatic collateralisation arrangement is expanded to include settlement of retail payments in the Sumclearing and settlement of FX transactions in the international clearing and settlement system CLS Bank International, CLS.

2003: Scandinavian Cash Pool, an automated system for pledging of cross-border collateral, is introduced for intraday credit in Danish kroner.

2004: The collateral basis is expanded to include euro-denominated bonds.

2004: Adjustment of risk-management instruments: liquidity categories are introduced, haircuts adjusted and initial margin requirements abolished.

2007: The collateral basis is expanded to include SDOs.

2008: Rating requirements are introduced for intraday credit in euro.

2008-09: Temporary expansion of the collateral basis, cf. Box 6.

2010: The collateral basis is expanded to include junior covered bonds.

Note: See Danmarks Nationalbank (2005) for an elaboration on the automatic collateralisation arrangement, the Sumclearing, CLS and Scandinavian Cash Pool.

Defining the collateral basis
Due to country-specific circumstances, the same overall considerations often lead to different definitions of the collateral basis.

The size of the capital markets plays a role, including the outstanding volume of government securities. A large bond market, such as the Danish market for mortgage-credit bonds and SDOs, supports a narrow collateral basis. In some euro area member states, residential mortgages and borrowing by the corporate sector are mainly financed by bank loans rather than bond issuance, which is why the Eurosystem accepts credit claims as collateral.⁵Norway issues only few government securities and the bond market is small, which contributes to explaining why Norges Bank operates with a wide collateral basis.⁶

Payment patterns also affect the need for collateral. In Denmark, there is a relatively large liquidity requirement in payment systems on days when mortgages are paid or days with large central-government receipts of e.g. taxes. In Norway, the liquidity requirements of the counterparties increase on days when the special oil tax to the government falls due.

Furthermore, the payments infrastructure affects the need for collateral since e.g. participation in net settlement systems reduces the participants' current liquidity requirements⁷, but also requires liquidity to be available at certain times, which increases the need for intraday liquidity. An example is the multi-currency foreign-exchange clearing and settlement system CLS, which was the background to the establishment of Scandinavian Cash Pool, an automated system for pledging of cross-border collateral for intraday credit in Danish and Norwegian kroner and Swedish kronor.⁸

A group of counterparties with a fairly homogeneous composition of assets enables a narrowly defined collateral basis. That is the case for the Federal Reserve, whose counterparties are limited to a small group of primary dealers. Conversely, if the group of counterparties has a more heterogeneous composition of assets on their balance sheets, the collateral basis must not be too narrow. That is the case with the Eurosystem, which was made up of fragmented financial markets with a more diverse composition of assets on the balance sheets of the financial institutions. This entailed a need for a wide collateral basis in order to ensure that counterparties throughout the euro area held or could be expected to hold eligible assets on their balance sheets.⁹The collateral bases of the ECB, the Federal Reserve, the Bank of England, Sveriges Riksbank, Norges Bank and Danmarks Nationalbank is listed in Table 1.

Collateral BasEs								Table 1
	ECB	Federal Reserve (OMO)¹	Federal Reserve (SF)¹	Bank of England Standard²	Bank of England Wider²	Sveriges Riksbank³	Norges Bank	Danmarks National- bank
Government securities, etc.⁴	X	X	X	X	X	X	X	X
Covered bonds⁵	X		X		X	X	X	X
Bank bonds	X		X		X	X	X
Corporate bonds	X		X		X	X	X
Asset-backed securities	X	X	X		X	X	X
Bank loans	X		X
Foreign bonds	X		X	X	X	X	X
Bonds from multilateral institutions	X		X	X	X	X	X
Other currencies (number)	0	0	8	1	7	6	9	1
Source: ECB (2008a), Sveriges Riksbank (2009) and central-bank websites. ¹ Federal Reserve: OMO = open market operations. SF = standing lending facility (Discount Window). Asset-backed securities (ABS) for open market operations include mortgage-backed securities guaranteed by federal agencies (Freddie Mac, Fannie Mae, Ginnie Mae) ²Bank of England: The standard collateral basis applies to open market operations, intraday credit and an operational standing lending facility. The wider collateral basis applies to extended-collateral long-term repos and a Discount Window Facility under which government securities are lent. ³Sveriges Riksbank: for open market operations, the collateral basis comprises securities denominated in Swedish kronor only. ⁴Also includes government-guaranteed securities and securities issued by regional and local authorities. ⁵See Andersen and Johansen (2009) and ECB (2008b) for further information on covered bonds.

Collateral basis and risk management
In terms of risk mitigation, a narrow collateral basis solely comprising domestic government securities and debt instruments issued by the central bank would be preferable, as this minimises the risk of losses. As it is necessary to ensure a sufficient amount of eligible assets, however, this would often result in a collateral basis that is too small to ensure effective implementation of monetary policy and smooth settlement of payments. Typically, a wider collateral basis is therefore required. As the central bank widens the collateral basis, assets with relatively greater credit, market and liquidity risk become eligible, and – in the case of assets denominated in foreign currency – assets entailing exchange-rate risk. A wide range of instruments can be used to manage the central bank's risk in relation to collateralised credit facilities, cf. Box 3.

Collateral risk management	Box 3
Credit risk, i.e. the risk that the counterparty defaults on its payment obligation, can be managed by means of an institutional and legislative limitation of eligible assets or by operating with rating requirements. Liquidity risk, i.e. the risk of a negative impact on the market value of an asset when it is realised, can be managed by means of valuation haircuts, i.e. percentage deductions in the collateral value; initial margins, i.e. requirements of excess cover when calculating the collateral value; requirements of regular quotation of bid and ask prices by market makers; and possibly minimum requirements as to outstanding volume. Market risk, i.e. the risk that the market value of the assets falls from the time of the most recent calculation of its collateral value to the time when it is realised, can be managed by means of daily market valuation, i.e. the most recent price quoted (mark-to-market), and theoretical pricing, i.e. a theoretical price if an asset has not been traded for some days; valuation haircuts; and use of a variation margin, i.e. a requirement of additional collateral if the collateral value falls below a certain level. Exchange-rate risk in connection with credit against assets denominated in foreign currency as collateral can be managed by means of exchange-rate haircuts. Concentration risk can be managed by setting limits to each counterparty's loans in terms of e.g. series, issuer, asset type, sector, etc.
Note: See e.g. Chailloux, Gray and McCaughrin (2008), Federal Reserve System (2002) and Bindseil and Papadia (2006) for a discussion of risk management and pledging of collateral, and Danmarks Nationalbank (2003) for a description of rating requirements.

When laying down its collateral framework, a central bank must bear in mind that counterparties naturally pledge the least liquid assets with the lowest credit quality among the eligible assets as collateral, reserving the most liquid assets with the highest credit quality for money-market loans. This is known as "Gresham's law of collateral".¹⁰

Danmarks Nationalbank's rules for asset eligibility

Danmarks Nationalbank extends three types of credit to its monetary-policy counterparties (banks and mortgage-credit institutes): monetary-policy loans in kroner, intraday credit in kroner and euro, and loans for decentralised banknote holdings.

In the regular weekly open market operations, the monetary-policy counterparties have access to 7-day monetary-policy loans and may deposit liquidity at Danmarks Nationalbank for seven days by purchasing certificates of deposit.¹¹Danmarks Nationalbank operates with an "open window", in which Danmarks Nationalbank determines the rate of interest on loans and deposits, after which the counterparties themselves – within the current-account limits – manage the size of their loans and deposits. Hence there is no quantitative limit to how much counterparties may borrow from Danmarks Nationalbank, provided that they are able to pledge eligible assets as required.

Danmarks Nationalbank's collateral basis predominantly comprises government securities, mortgage-credit bonds and SDOs, cf. Table 1. In spite of a relatively large number of monetary-policy counterparties, currently 112, Danmarks Nationalbank limits the collateral basis for credit in Danish kroner and euro to securities where underlying legislation ensures a high credit quality. Major reasons why Danmarks Nationalbank is able to operate with a narrow institutional and legislative definition of the collateral basis are the large market for mortgage-credit bonds and SDOs and familiarity with and confidence in the underlying legislation. Danmarks Nationalbank's collateral basis is described in Box 4.

Danmarks Nationalbank's collateral basis	Box 4
Danmarks Nationalbank extends credit in kroner to its monetary-policy counterparties for monetary-policy loans, intraday credit and loans for decentralised banknote holdings against the following securities in kroner or euro as collateral: Securities issued by the Kingdom of Denmark. Debt securities guaranteed by the Kingdom of Denmark. Debt securities issued by KommuneKredit and Danish Ship Finance. Mortgage-credit bonds and covered bonds, SDOs, issued by institutes subject to the Danish Financial Business Act. Junior covered bonds issued pursuant to Section 33(e) of the Danish Mortgage-Credit Loans and Mortgage-Credit Bonds etc. Act or Section 152(b) of the Danish Financial Business Act. Debt securities issued by Føroya Landstýri, the Faroese government. The securities must be traded at OMX Nasdaq Copenhagen and registered with VP Securities. In addition, junior covered bonds must comply with a rating requirement. The requirements concerning registration with VP Securities and trading at OMX Nasdaq Copenhagen reflect considerations such as minimising operational risk and administrative costs to Danmarks Nationalbank and its counterparties. The counterparties also have access to intraday credit in euro. The collateral basis is the same as for credit in Danish kroner, except in the case of junior covered bonds and debt securities issued by the Faroese government. The securities must comply with a rating requirement laid down by the ECB. For mortgage-credit bonds, covered bonds and bonds issued by Danish Ship Finance, the rating requirement for intraday credit in euro applies only to bond series opened after 1 January 2008. Furthermore, Danmarks Nationalbank's framework for credit operations stipulates that the securities may not be issued by the counterparty itself or by an entity with which the counterparty has close links. Mortgage-credit bonds and SDOs are exempt from this rule as they meet the UCITS 22(4) criteria, so that the investor has priority claim in respect of underlying payments from homeowners in the event that the issuer defaults on its payment obligations, cf. the UCITS Directive (Directive 88/220, amending Directive 85/611). Certificates of deposit are included in the collateral basis when calculating the maximum access to intraday credit in kroner.
Source: Danmarks Nationalbank (2010).

From a requirements perspective, the collateral basis is deemed to be sufficient to cover the needs of the monetary-policy counterparties to pledge collateral vis-à-vis Danmarks Nationalbank. The counterparties' share of the total outstanding volume of eligible securities was 34 per cent in 2009. 30 per cent of these were pledged as collateral to Danmarks Nationalbank, cf. Chart 1. The counterparties mainly pledge mortgage-credit bonds and SDOs to Danmarks Nationalbank, cf. Chart 2.

Counterparties' stocks and use of eligible assets in 2009	Chart 1

Note: Comprises government securities, mortgage-credit bonds and SDOs. Average at the end of all months in 2009. Source: Danmarks Nationalbank.

Pledging of eligible assets by counterparties	Chart 2

Source: Danmarks Nationalbank.

Danmarks Nationalbank's risk management
Danmarks Nationalbank has an obligation to observe the ECB's guidelines for risk management in connection with intraday credit in euro and has chosen also to let these guidelines apply to credit in Danish kroner, except where special considerations require otherwise. The aim is to simplify the collateral framework, thus making it easier for foreign counterparties to understand, while complying with international standards.

The collateral value of a security pledged to Danmarks Nationalbank is found by taking its market value and subtracting a percentage, known as the valuation haircut, depending on the interest-rate sensitivity and liquidity of the security. Pledged securities are assigned to one of four liquidity categories, and the valuation haircut increases with the residual maturity, cf. Box 5. Floating-rate bonds are subject to the same valuation haircuts as securities with a residual maturity of up to 1 year. When securities denominated in euro are pledged as collateral for credit in kroner and vice versa, an exchange-rate haircut of 3 per cent is also de-ducted. The valuation haircuts and liquidity categories correspond to those applied by the ECB.¹²

Valuation haircuts				Box 5
Valuation haircuts are combined with daily market valuation in order to ensure that an asset pledged as collateral can be realised at a value that, as a minimum, matches the loan amount in the event of a counterparty's default on its payment obligation. Therefore valuation haircuts do not serve to minimise credit risk, but to minimise liquidity and market risk. Valuation haircuts are asset-specific and depend on the liquidity and interest-rate sensitivity of the individual securities. Liquidity is usually measured on the basis of asset type, issuer and outstanding volume and determines the liquidity category in which an asset is placed. Interest-rate sensitivity is based on coupon type and residual maturity.
Haircuts for VP-registered assets with fixed coupon rates				Table 2
Residual maturity	Category 1	Category 2	Category 3	Category 4
0-1 year	0.5	1.0	1.5	6.5
1-3 years	1.5	2.5	3.0	8.0
3-5 years	2.5	3.5	4.5	9.5
5-7 years	3.0	4.5	5.5	10.5
7-10 years	4.0	5.5	6.5	11.5
> 10 years	5.5	7.5	9.0	14.0
Note: Per cent of market value. For eligible securities with a zero coupon rate, floating coupon rate or inverse floating rate, the haircuts are listed in ECB (2008a). The valuation haircuts of the securities are the same, irrespective of whether the assets are pledged as collateral for credit in kroner or euro. Source: ECB (2008a) and www.nationalbanken.dk.

Daily market valuation of eligible assets is based on the preceding day's official price at OMX Nasdaq Copenhagen, including accrued interest. If a security has not been traded within the last five banking days, a theoretical price is calculated. For securities denominated in euro, the collateral value in kroner is calculated on the basis of Danmarks Nationalbank's official exchange rate on the preceding day.

The financial crisis and pledging of collateral

The financial crisis has increased focus on the central banks' collateral frameworks. The collateral premium for assets that are eligible as collateral vis-à-vis central banks has increased considerably, and central-bank eligibility has become an important factor when issuing new securities. This is emphasised by the increasing tendency for issuers to "tailor" their issues to the central banks' collateral frameworks.

In periods with financial turmoil and high collateral premiums, a narrower collateral basis at Danmarks Nationalbank than at the Eurosystem could put krone-denominated issues at a disadvantage relative to euro-denominated issues, which could impede the functioning of the Danish financial markets. Moreover, it could trigger a shift from krone loans to euro loans among Danish banks.

The financial crisis has put even more spotlight on financial stability. During the crisis, central banks worldwide introduced a number of temporary credit measures to ease the tight liquidity situation. Like other central banks, Danmarks Nationalbank temporarily expanded its credit facilities, cf. Box 6.

TEmporary credit facilities at Danmarks Nationalbank	Box 6
During the financial crisis Danmarks Nationalbank temporarily extended the credit facilities available to monetary-policy counterparties. The collateral basis was extended to include: Loan bills. Quoted and unquoted shares. Quoted investment fund shares. Quoted and unquoted junior covered bonds with individual government guarantees, cf. the Act to Amend the Financial Stability Act, and quoted junior covered bonds without a government guarantee. Quoted and unquoted unsecured debt issued by banks and mortgage-credit institutes with a general government guarantee, cf. the Financial Stability Act, or with individual government guarantees, cf. the Act to Amend the Financial Stability Act. SPV bonds (Special Purpose Vehicle) issued on the basis of loans with individual government guarantees to banks and mortgage-credit institutes, cf. the Act to Amend the Financial Stability Act. Danmarks Nationalbank also introduced a new temporary credit facility giving banks and mortgage-credit institutes access to borrow on the basis of their excess capital adequacy, calculated as the difference between their base capital and their capital need. The temporary credit facilities expire on 26 February 2011, except for the extension of the collateral basis to include securities comprised by individual government guarantees: unsecured debt issued by banks and mortgage-credit institutes, junior covered bonds and SPV bonds, which will apply until 30 December 2013.
Source: See Danmarks Nationalbank (2009b) and www.nationalbanken.dk under Rules/Temporary credit facilities for a further description of the temporary credit facilities.

Danmarks Nationalbank receives many enquiries about amendments to its rules for asset eligibility, notably about the expansion of the collateral basis to include new types of securities. Danmarks Nationalbank regularly assesses the collateral basis in relation to market conditions and makes the necessary adjustments. A case in point was the inclusion of junior covered bonds in February 2010, cf. Box 2.

If the need for temporary adjustments in connection with future turmoil in the financial markets is to be reduced, this can be achieved by expanding the collateral basis – provided that the new assets included are assets held by the counterparties on their balance sheets.

As Chart 3 illustrates, lending is by far the largest item on the counterparty balance sheets. Other assets than lending and assets already eligible as collateral vis-à-vis Danmarks Nationalbank constitute only a small share of the balance sheets. From a legal and administrative point of view, loans are difficult to pledge as collateral. Under loan agreements, the banks have often made a commitment not to pledge their assets, but with a few exceptions such as standard pledging of collateral to the central bank. Moreover, rules may stipulate that a bank can dispose of its assets only as part of its normal operations, for example. Finally, if a loan is pledged as collateral, each individual debtor must be notified, which could be administratively cumbersome. During the financial crisis the possibility of accepting loans as collateral on a temporary basis was considered, but due to the above factors, among others, loans were not included in the temporary expansion of the collateral basis.

The banks' assets broken down by asset classes, March 2010	Chart 3

Note: The Danish Financial Supervisory Authority's grouping of banks by working capital has been applied. Source:Danmarks Nationalbank.

Literature

Andersen, Carsten and Claus Johansen (2009), Danish Mortgage-Credit Bonds during the Financial Turmoil, Danmarks Nationalbank, Monetary Review, 3rd Quarter.

Andersen, Niels C. and Kirsten Gürtler (2003), The Provision of Collateral to Danmarks Nationalbank in a Legal Perspective, Danmarks Nationalbank, Monetary Review, 3rd Quarter.

Bakke, Bjørn, Knut Sandal and Ingrid Solberg (2008), Collateral for loans from Norges Bank – consequences of changes in the rules , Norges Bank, Economic Bulletin , No. 1.

Bank of England (2008), The development of the Bank of England's market operations. A consultative paper, Bank of England, October.

Bindseil, Ulrich and Francesco Papadia (2006), Credit risk mitigation in central bank operations and its effects on financial markets: the case of the Eurosystem, ECB, Occasional paper series, No. 49, August.

Chailloux, Alexandre, Simon Gray and Rebecca McCaughrin (2008), Central bank collateral frameworks: principles and policies, IMF, Working Paper, No. 222, September.

Cheun, Samuel, Isabel von Köppen-Mertes and Benedict Weller (2009), The collateral frameworks of the Eurosystem, the Federal Reserve System and the Bank of England and the financial market turmoil, ECB, Occasional paper series, No. 107, December.

Danmarks Nationalbank (1999), Monetary Review, 2nd Quarter.

Danmarks Nationalbank (2004), Financial Management at Danmarks Nationalbank, January.

Danmarks Nationalbank (2005), Payment Systems in Denmark, September.

Danmarks Nationalbank (2009a), Monetary Policy in Denmark, September.

Danmarks Nationalbank (2009b), Financial stability 1st half, June.

Danmarks Nationalbank (2010), Documentation for monetary-policy instruments and settlement of payments in DKK, EUR, SEK and ISK, February.

ECB (2007), The collateral frameworks of the Federal Reserve System, the Bank of Japan and the Eurosystem, Monthly Bulletin, October.

ECB (2008a), The implementation of monetary policy in the euro area: General Documentation on Eurosystem monetary policy instruments and procedures, November.

ECB (2008b), Covered bonds in the EU Financial System, December.

Federal Reserve System (2002), Alternative instruments for open market and discount window operations, December.

Federal Reserve System (2010), Credit and liquidity programs and the balance sheet, Monthly Report, February.

Sveriges Riksbank (2009), Terms and Conditions for RIX and monetary policy instruments. Annex H4. Collateral Instructions, September.

[1] See e.g. Chailloux, Gray and McCaughring (2008) and ECB (2007).

[2] See Andersen and Gürtler (2003) for a legal perspective on pledging of collateral to Danmarks Nationalbank.

[3] See e.g. Federal Reserve System (2002) as regards the Federal Reserve, ECB (2007) for the Eurosystem, Bank of England (2008) and Bakke, Sandal and Solberg (2008) for Norges Bank.

[4] See Danmarks Nationalbank (1999) and Danmarks Nationalbank (2009a).

[5] ECB (2007) and Cheun, von Köppen-Mertes and Weller (2009).

[6] Bakke, Sandal and Solberg (2008).

[7] Se Danmarks Nationalbank (2005) for a description of the netting effect in payment and settlement systems.

[8] Danmarks Nationalbank (2005).

[9] ECB (2007) og Cheun, von Köppen-Mertes og Weller (2009).

[10] See Danmarks Nationalbank (2005) for Gresham's law and Chailloux, Gray and McCaughrin (2008) for Gresham's law of collateral.

[11] See Danmarks Nationalbank (2009a) for a description of the monetary-policy instruments.

[12] See ECB (2008a) and the ECB's website.

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