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"Monetary review - 4th Quarter 2001"

Financial Institutions' Accounts at and Pledging of Collateral to Danmarks Nationalbank

Introduction

Danmarks Nationalbank plays a pivotal role in Denmark's financial system since fundamentally, claims on Danmarks Nationalbank are free of risk and liquid. The general acceptance of this is prerequisite to Danmarks Nationalbank's ability to conduct monetary policy and thereby determine the level of the short-term interest rate. Furthermore, it entails that claims on Danmarks Nationalbank are used to settle transactions between the financial agents. In practice, transactions are settled via accounts at Danmarks Nationalbank.

The financial institutions that are entitled to hold accounts at Danmarks Nationalbank are Danish credit institutions and investment companies, foreign credit institutions and investment companies that conduct cross-border operations in Denmark, and branches in Denmark of foreign credit institutions and investment companies. In addition, Danmarks Nationalbank is banker to the central government. Finally, a number of other institutions, including foreign central banks, may hold accounts at Danmarks Nationalbank. In this article, the term "account holders" refers to financial institutions as defined above.

Danmarks Nationalbank uses a number of accounts in its role as settlement bank for payment systems. The current account is the account holders' principal account at Danmarks Nationalbank. It is used for settlement of payments among the account holders and between the account holders and Danmarks Nationalbank. Payments to and from the central government are also transacted via the current accounts. The account holders may also hold a number of settlement accounts at Danmarks Nationalbank.

Danmarks Nationalbank furthermore has a range of transactions with a specific group of account holders. These transactions are related to Danmarks Nationalbank's role as the monetary-policy authority and supplier of banknotes and coins. The account holders with access to the monetary-policy instruments are Danish banks and mortgage-credit institutes, and branches in Denmark of foreign banks and mortgage-credit institutes. Only the banks play a role in the supply of banknotes and coins. Danmarks Nationalbank's monetary-policy operations and transactions related to the supply of cash are settled via the current account and registered to special accounts.

Danmarks Nationalbank requires securities as collateral for all types of credit. This applies to intraday credit in the settlement of payments, to monetary-policy loans, and to loans to cash depots. There are also a number of accounts related to the pledging of collateral at Danmarks Nationalbank.

Since the introduction of the euro on 1 January 1999, Denmark has participated in the European payment system, TARGET. This has required an infrastructure for payments denominated in euro. This infrastructure, including the structure of accounts at Danmarks Nationalbank, is generally similar to the infrastructure for krone-denominated payments. A number of adjustments were required, however, to take account of the special terms for credit granting in euro applying to EU member states that have not introduced the euro.

It is also possible to hold settlement accounts denominated in Swedish kronor at Danmarks Nationalbank for settlement of payments concerning Swedish securities issued on the Copenhagen Stock Exchange and registered at the Danish Securities Centre (VP).

The terms and conditions for accounts held at Danmarks Nationalbank govern the use of the counterparties' accounts in Danish kroner, euro and Swedish kronor. This article describes the structure of accounts at Danmarks Nationalbank and the practical design of the systems to handle collateral that have been developed as part of the credit facilities extended by Danmarks Nationalbank.

Account holders' transactions in danish kroner at Danmarks Nationalbank

In practice, the general acceptance that deposits/overdrafts on current accounts at Danmarks Nationalbank can be used to settle the financial systems' transactions in Danish kroner implies that Danmarks Nationalbank is the sole provider of liquidity to the overall system. The account holders can trade liquidity among themselves and thereby reallocate liquidity, but they cannot themselves generate liquidity. Therefore it is an important task for Danmarks Nationalbank to ensure sufficient liquidity in the system at all times. The task has two closely related elements:

• Payment system: to ensure that sufficient liquidity is available to the system in the course of the day.
• Monetary policy: to ensure that there is sufficient liquidity in the overall system at 3.30 p.m., when the monetary-policy day closes and the account holders' balances are settled.

Payment systems
Payments settled via accounts at Danmarks Nationalbank are the result of transactions between the account holders' customers, or of the account holders' own transactions. Some payments are settled directly via the account holders' current accounts, while other types of payments are first collected and cleared in a separate system outside the Nationalbank and then settled via accounts at the Nationalbank.

Danmarks Nationalbank participates in the settlement of payments via three different Danish systems: KRONOS (has replaced the payment part of the DN Inquiry and Transfer System (DN-F) and DEBES), retail clearing and VP clearing. Moreover, trading of options and futures (derivatives) is settled via accounts at Danmarks Nationalbank. Derivative trades are cleared in the Swedish derivative clearing system.

KRONOS is Danmarks Nationalbank's payment system. It offers account holders access to transfer amounts between their own accounts and the accounts of other account holders in Danish kroner and euro. KRONOS is an RTGS (Real-time Gross Settlement) system whereby payments are settled individually immediately after the payment request. RTGS systems are used for a relatively small number of large-value payments.

The retail clearing and VP clearing are clearing systems whereby payments of the same type to and from the participants are collected and cleared. The retail clearing and VP clearing are both netting systems^[1]. In these systems, all payments to and from a participant are netted into one payment which is subsequently settled via the participants' accounts at Danmarks Nationalbank. The settlement terms are described in further detail in settlement agreements between Danmarks Nationalbank and the clearing systems.

The retail clearing system inter alia settles Dankort (direct debit) transactions, cheque payments and payments via Betalingsservice (payment service system). The retail clearing system is owned by Finansrådet (the Danish Bankers Association) and is operated by Pengeinstitutternes BetalingsSystem (PBS). The VP clearing system comprises settlement of securities trades whereby securities are exchanged for money, and "periodic settlements" where interest and repayments are settled. Net securities positions are cleared between the participants' VP safekeeping accounts, while net cash positions are settled via accounts at Danmarks Nationalbank. The Danish Securities Centre (VP) both owns and operates the VP clearing system.

In the retail clearing and VP clearing systems payments are settled in two separate settlement runs. Each settlement run in turn consists of a number of settlements or settlement blocks, according to a fixed timetable. Most of the retail clearing and VP clearing operations take place overnight.

As part of Danmarks Nationalbank's role as settlement bank in payment systems intraday current-account overdrafts against securities pledged as collateral are permitted. However, no current account may show an overdraft when the account is settled at 3.30 p.m. If an overdraft has not been covered, Danmarks Nationalbank will charge an amount calculated as a fixed percentage of the overdraft. Between 3.30 p.m. and 4.00 p.m. the account holders may not make transactions via their krone-denominated accounts at Danmarks Nationalbank. A new monetary-policy day begins after 4.00 p.m., so that in practice the account holders have intraday access to draw on their current accounts from 4.00 p.m. until 3.30 p.m. on the following day. The rules for pledging of collateral to Danmarks Nationalbank are described in further detail below.

The intraday overdraft access facilitates the transaction of payments by making it easier for the account holders to settle payments falling due at various times of the day. No interest is charged on intraday overdrafts. The practical aspects of the pledging of collateral are handled via the DN Inquiry and Transfer System (DN-F). The account holder must have KRONOS and DN-F in order to have access to a current account at Danmarks Nationalbank^[2].

The clearing systems for settlement via accounts at Danmarks Nationalbank by and large apply the same overall concept, cf. Chart 1. Within an agreed time frame the participants in the retail clearing and VP clearing systems must transfer liquidity from their current accounts to special accounts, called settlement accounts, that are dedicated to retail clearing and VP clearing respectively. Since the account holders have free access to their current accounts, settlement accounts are necessary to ensure that vis-à-vis the clearing systems Danmarks Nationalbank can guarantee the account holders' clearing transfers.

Chart 1 Danmarks Nationalbank's settlement infrastructure

On the basis of the settlement account balance Danmarks Nationalbank specifies each participant's maximum access to draw on the clearing systems. The clearing transactions are then carried out, provided that there is sufficient liquidity. Danmarks Nationalbank is subsequently informed of each participant's net position, which is booked to the settlement accounts. After completion of the overnight settlements, the balances of the participants' settlement accounts are transferred to their current accounts, whereby the amounts are again freely available to the account holders.

A special procedure for pledging of collateral in connection with securities trades, called the automatic collateralisation agreement, has been established in connection with VP settlement in Danish kroner. An automatic collateralisation agreement between an account holder and Danmarks Nationalbank entitles the account holder to credit facilities at Danmarks Nationalbank on the basis of a securities portfolio held in a VP safekeeping account. For the account holder the special aspect of the automatic collateralisation agreement compared to the traditional pledging of collateral is primarily that this makes it possible to use purchased securities as collateral as from the settlement in which the securities are purchased. Normally, securities can only be used as collateral as from subsequent settlement blocks. Pledging collateral via the automatic collateralisation agreement thus binds fewer securities than the traditional pledging of collateral. At present, the automatic collateralisation agreement is used only in connection with VP settlements. An amendment of the Securities Trading Act in 2001 has provided the legal basis for broader application of the automatic collateralisation agreement.

In connection with VP clearing the participants' total maximum overdraft access is the sum of the settlement account's balance and the overdraft access under the automatic collateralisation agreement. Settlement takes place on condition that a participant's total net overdraft can be kept within the limits of the overall overdraft access. Each participant holds a automatic collateralisation agreement account at Danmarks Nationalbank to which overdrafts under the automatic collateralisation agreement are booked. Liquidity requirements arising from the VP clearing are first covered by drawing on the automatic collateralisation agreement account, and then by drawing on the settlement account at Danmarks Nationalbank, while the net proceeds from a settlement are first used to cover any overdrafts under the automatic collateralisation agreement, after which any positive balance is transferred to the settlement account. Overdrafts under the automatic collateralisation agreement must be covered before 1.30 p.m. by transfer from the current account. Chart 2 outlines the structure for settlement of VP trades.

Chart 2 Værdipapircentralens handelsafvikling

Monetary policy
Danmarks Nationalbank's monetary-policy instruments are the facilities normally used by Danmarks Nationalbank to manage and remunerate accounts with the eligible counterparties. Monetary policy is implemented via Danmarks Nationalbank's fixing of the rate of interest for the monetary-policy accounts, which comprise

• overnight current-account deposits
• 14-day transactions whereby the counterparties either borrow from Danmarks Nationalbank against securities as collateral (monetary-policy loans), or make placements by purchasing certificates of deposit.

The net position of the eligible counterparties vis-à-vis Danmarks Nationalbank is defined as the sum of the counterparties' total current-account balances and holdings of certificates of deposit, less their total monetary-policy loans. The net position of the counterparties taken as one is given externally, and is determined primarily by Danmarks Nationalbank's interventions in the foreign-exchange market. In the short term, net payments by the central government can also affect the net position, although this effect is neutralised by the central government's domestic borrowing within the year. The net position is also influenced by other factors, including fluctuations in banknotes and coins in circulation, but in terms of amounts this impact is negligible.

When the day ends at 3.30 p.m. the account holders' current accounts are closed and the amounts change status from non-interest-bearing intraday balances to monetary-policy balances that accrue interest at the current-account interest rate. Since 1992 the current-account interest rate has corresponded to the discount rate. Lending against pledged securities and certificates of deposit is remunerated at the same interest rate, i.e. the rate for lending and certificates of deposit.

Each counterparty is allocated a limit for current-account deposits so as to limit the eligible counterparties' opportunities to build up large current-account balances that can be used to speculate against the krone in connection with foreign-exchange crises. The limit is fixed with due consideration of the capital base of the counterparties and their significance to the money market. Any current-account deposit that exceeds the individual limit at 3.30 p.m. is converted into certificates of deposit by Danmarks Nationalbank. However, the Nationalbank will only resort to individual conversion if the counterparties' total limit is exceeded. The present total limit for current-account deposits at the Nationalbank is just under kr. 19.4 billion.

Danmarks Nationalbank conducts regular monetary-policy operations once a week. In these operations the eligible counterparties taken as one distribute the net position on current-account balances, certificates of deposit and loans against collateral so as to ensure sufficient liquidity in the system as a whole to accommodate the expected liquidity fluctuations one week ahead. Individual liquidity requirements in the course of the week must be set off in the money market, since as stated, Danmarks Nationalbank does not permit overdrafts on the counterparties' current accounts when the day ends at 3.30 p.m.

The regular monetary-policy operations are normally carried out on the last banking day of each week. Danmarks Nationalbank sells certificates of deposit between 10.00 a.m. and 3.30 p.m., while lending transactions are handled between 10.00 a.m. and 1.00 p.m. Both types of transaction have an immediate liquidity effect, and the counterparties' purchases of certificates of deposit and raising of monetary-policy loans are not subject to any quantitative restrictions. Besides the regular monetary-policy operations Danmarks Nationalbank provides or absorbs liquidity via operations in open series of certificates of deposit.

At any time there will be two outstanding series of certificates of deposit and two outstanding monetary-policy loans, which are held via separate accounts. Since the transactions are established and mature on the same day, in practice each monetary-policy counterparty has three accounts for certificates of deposit and for loans. Each series of certificates of deposit and loans is designated by the year and week of maturity (e.g. 01/48 for the certificate of deposit/monetary-policy loan maturing in week 48 of 2001).

When a loan transaction is established the loan is debited to a loan account and the proceeds are credited to the current account. When the loan transactions fall due, the interest is debited to the loan account and the loan proceeds, including interest, are transferred from the current account to the loan account. The loan falls due for repayment before KRONOS opens. When certificates of deposit are purchased, the purchase price is drawn from the current account, while the nominal value of the certificates of deposit is registered to the certificate-of-deposit account. When the certificates of deposit fall due for repayment, before the start of the banking day the relevant counterparty's current account is credited with the nominal value of the certificate of deposit, while the same amount is debited to the certificate-of-deposit account. The interest on the certificates of deposit cor-responds to the difference between the purchase price and par.

Loans to cash depots
The supply of banknotes and coins in Denmark takes place via a number of cash depots situated at banks all over the country. The cash depots are owned and operated by the banks. When a cash depot is established, a ceiling (maximum limit) is set for the size of the depot, and Danmarks Nationalbank grants the depot a non-interest-bearing loan against securities as collateral, cf. below. The collateral must correspond to the value of this maximum limit. Each cash depot has an account at Danmarks Nationalbank to which this loan is booked. For practical and insurance-related reasons collateral must be provided for the depot's maximum limit on an ongoing basis, even though the actual amount of cash held in the depot is typically less than the maximum amount.

In connection with the collection of banknotes and coins from a cash depot the requesting bank transfers funds from its current account to an intermediate account related to the depot in question. The depot withdraws the amount from the intermediate account, writes down the balance of the depot's loan account, and disburses the banknotes and coins. When banknotes and coins are delivered to a cash depot, the depot transfers the amount directly to the current account of the delivering bank.

Pledging of collateral for krone-denominated credit

As a general rule Danmarks Nationalbank grants intraday credit, monetary-policy loans and loans for cash depots on the basis of collaterised securities that are listed on the Copenhagen Stock Exchange and registered at the Danish Securities Centre (VP). The arrangement of the pledging of collateral to Danmarks Nationalbank is that a pool of pledged securities in a VP safekeeping account can be used as collateral for all three types of loan. In practice, the securities are pledged by the counterparty transferring assets to a VP safekeeping account that is pledged to Danmarks Nationalbank. Certificates of deposit can also be used as collateral, although only for intraday credit.

The overall framework for the liquidity available to a counterparty from Danmarks Nationalbank consists of the sum of the collateral value of the securities pledged to Danmarks Nationalbank, the balance of the yield account attached to the safekeeping account, and the collateral value of the counterparty's holdings of certificates of deposit.

The intraday credit is determined residually, i.e. the collateral value is first used to cover actual monetary-policy loans and loans to cash depots. Any excess collateral, together with the collateral value of the counterparty's holdings of certificates of deposit, will then determine the total maximum intraday amount, cf. the list below.

Calculation of the maximum intraday amount:
Collateral value after margin of collateral in the safekeeping account
+ balance of yield account (any withheld drawings)
+ other assets
= Total collateral value after margin of pledged assets
- monetary-policy loans
- maximum amount for loans concerning cash depots
= Excess collateral
+ collateral value of certificates of deposit
= Maximum intraday amount
- overdrafts on current account
= Disposable amount

The value of the pledged safekeeping account fluctuates continuously due to the day-to-day fluctuations in the prices of the pledged securities. To minimise the risk of the value of the counterparty's monetary-policy loans and loans to cash depots exceeding the value of the pledged securities, the collateral value of the pledged VP assets is calculated by deducting securities-specific haircuts, which are dependent on the securities' residual maturity and liquidity, from the market value of the securities, cf. Table 1. Moreover, a general margin of 2 per cent is required, whereby collateral with a value of at least kr. 102 must be pledged for each loan of kr. 100.

Table 1 Margins and haircuts for provision of collateral for krone-denominated credit from Danmarks Nationalbank

	Per cent	Percentage points
Margin	2
Haircuts for VP-registered assets:
Residual maturity up to and including 3 years	0
Residual maturity over 3 years up to and including 7 years	1
Residual maturity over 7 years	3
Haircut premium due to limited liquidity1		10

Note:	If the collateral value of the pledged VP-registered assets is less than 101 per cent of the outstanding loans the margin of 2 per cent must be re-established.
1	If the amount in circulation in a series is less than kr. 3 billion.

When monetary-policy loans and loans to cash depots are granted, and when securities are withdrawn from the safekeeping account, the collateral value must always exceed the sum of the already outstanding loans and the loans granted by a margin of 2 per cent. To facilitate the day-to-day admin-istration of the safekeeping account supplementary collateral is only requested if the collateral value of the pledged securities is less than 101 per cent of the outstanding 14-day loans and loans to cash depots. When supplementary collateral has been requested the collateral value must exceed the outstanding loans by the margin of 2 per cent.

Bonds drawn from the pledged safekeeping account are credited to a pledged yield account which is part of the collateral basis alongside the collateral value of the securities after deduction of margin. In so far as other required collateral exists, the balance of the yield account will be transferred to the current account on a daily basis.

Accrued interest on pledged securities is booked directly to the current account or to another account as indicated by the account holder.

If pledged assets are to be exchanged the counterparty must first deposit and then withdraw pledged assets from the pledged safekeeping account.

VP-registered assets that can be used as collateral
Danmarks Nationalbank accepts as collateral for krone-denominated loans the following securities denominated in Danish kroner, registered in VP and listed on the Copenhagen Stock Exchange:

• Danish central-government securities, including bonds issued by the Fisheries Bank and the Mortgage Bank.
• Bonds guaranteed by the Kingdom of Denmark.
• Bonds issued by KommuneKredit (the Danish Credit Institution for Local Authorities) and the Ship Credit Fund of Denmark.
• Mortgage-credit bonds issued by institutions subject to the Mortgage Credit Act.

In addition, Danmarks Nationalbank may determine which other assets can be pledged as collateral for krone-denominated credit facilities, subject to specific assessment. Danmarks Nationalbank has concluded a correspondent bank agreement with Sveriges Riksbank and Norges Bank whereby branches in Denmark of Swedish and Norwegian banks may obtain krone-denominated credit from Danmarks Nationalbank on the basis of Swedish and Norwegian central-government securities held in safekeeping accounts with the respective securities depositories of Sweden and Norway and pledged to Danmarks Nationalbank. On the other hand, branches of Danish banks in the two countries may obtain credit from Sveriges Riksbank and/or Norges Bank on the basis of Danish central-government securities held in VP safekeeping accounts and pledged to the respective central banks of the two countries. In addition to each VP safekeeping account pledged to Sveriges Riksbank or Norges Bank, Danish participants in this Nordic correspondent central banking model also hold a pledged yield account at Danmarks Nationalbank.

Danmarks Nationalbank's settlement of payments in euro and swedish kronor

Like the other EU member states Denmark participates in TARGET, which is the joint European payment system. TARGET is based on the national RTGS systems. The Danish payment system KRONOS thus includes a TARGET module. Via TARGET, participants can transmit euro-denominated payments to each other with immediate effect. The amounts are transferred in TARGET via the participants' accounts at the central banks.

As for the system for settlement of payments denominated in kroner Danmarks Nationalbank participates in the settlement of euro-denominated payments via three Danish systems: KRONOS, euro retail clearing and VP clearing in euro.

Payments in euro between two Danish TARGET participants are transacted via KRONOS, just as a euro amount is transferred between a Danish and a foreign participant via KRONOS and the foreign participant's national RTGS system.

The infrastructure for euro payments is generally similar to the infrastructure for krone payments. However, more restrictive terms apply to TARGET participants that are residents in EU member states outside the euro area than to euro-area participants. The latter have access to unlimited intraday credit from their respective national central banks against appropriate collateral, whereas central banks in non-euro-area member states may only grant intraday euro credit on the basis of a deposit with a euro-area central bank. Denmark's current access to drawing amounts to euro 650 million. These are the overall terms for the Danish infrastructure for euro-denominated payments, including the structure of euro accounts at Danmarks Nationalbank.

The retail clearing system for euro payments is established as a copy of the retail clearing system for krone payments. However, at the present time the system does not offer certain types of transaction, including PBS transfers, in euro. In contrast to the retail clearing system for krone payments, the retail clearing in euro is settled during the day, since Danmarks Nationalbank may only make liquidity in euro available between 8.00 a.m. and 5.00 p.m. The overall settlement concept is otherwise identical to that for krone payments: the participants in the retail clearing system for euro payments must transfer funds to their retail clearing settlement accounts in euro. On the basis of the balance of the settlement account, Danmarks Nationalbank notifies each participant's maximum drawing right in euro to PBS. PBS calculates net positions for each participant, which are then compared to the participant's maximum drawing right. If the balance of the account is sufficient, PBS sends book entries to Danmarks Nationalbank, and the net positions are booked to the settlement accounts. The balance of the settlement accounts is then transferred to the respective euro current accounts.

A key consideration for the design of the VP clearing system in euro was to ensure the possibility of settlement with value on the same day of trades where the parties hold safekeeping accounts in respectively VP and Euroclear, the European clearing centre. Since securities settlement in Euroclear takes place overnight, when the Danish participants do not have access to euro-denominated liquidity from Danmarks Nationalbank, in practice euro-denominated trades must be converted to kroner and included in VP's general settlement of krone payments. Before noon, when the Danish participants have access to euro-denominated liquidity, the party that acquired securities via the overnight settlement pays in euro and is reimbursed with the equivalent amount in Danish kroner, and vice versa, whereby the net result is settlement in euro. The exchange of kroner against euro takes place in a special VP settlement, called a PvP (Payment versus Payment) settlement. For this purpose, each participant holds a PvP account in kroner and a PvP account in euro at Danmarks Nationalbank.

VP also settles securities trades in euro during the day. The counterparties to these trades hold a VP settlement account in euro at Danmarks Nationalbank.

Pledging of collateral for intraday credit in euro
The overall framework for the composition and risk management of the collaterisation basis for central banks' granting of intraday credit in euro in EU member states that have not introduced the euro is described in the rules of the European Central Bank (ECB)^[3]. In practice, the collaterisation basis for credit denominated in euro corresponds to the collaterisation basis for credit denominated in kroner, except that certificates of deposit are not eligible as collateral for euro credit from Danmarks Nationalbank.

With regard to risk management, in principle the ECB's margins and haircuts for gilt-edged securities, or tier 1 assets, are applied, cf. Table 2. Moreover, an illiquidity premium of 10 percentage points is applied, as in the system for krone payments. Finally, a haircut of 3 per cent is applied to the handling of the exchange-rate risk which is attributable to credit granting and the pledging of collateral in different currencies.

The technical framework for the pledging of collateral on the euro side corresponds to the system on the krone side: the account holder pledges a VP safekeeping account to Danmarks Nationalbank as collateral. The yields on the pledged securities are entered to a pledged yield account related to the safekeeping account.

Table 2 Margins and haircuts for provision of danish securities as collateral for euro-denominated credit from Danmarks Nationalbank

	Per cent	Percentage points
Margin	1
Exchange-rate haircut	3
Haircuts for VP-registered assets:
Residual maturity up to and including 1 year	0
Residual maturity over 1 year up to and including 3 years	1½
Residual maturity over 3 years up and including 7 years	2
Residual maturity over 7 years	3
Haircut premium due to limited liquidity		10

1	If the amount in circulation in a series is less than kr. 3 billion.

The correspondent central banking model, CCBM
The ECB and the EU central banks have established the correspondent central banking model (CCBM) for cross-border pledging of collateral in order to facilitate the pledging of collateral in TARGET. CCBM permits a central bank to grant credit in euro against collateral placed with another central bank. Special terms apply to Denmark's participation in CCBM as a non-euro-area EU member state. In practice, Danish banks with branches in a euro-area member state may obtain intraday credit (but not monetary-policy credit) in euro from a central bank in the euro area against Danish securities as collateral. It is up to the central banks of the euro area whether they will accept securities from non-euro-area EU member states as collateral pursuant to CCBM. At present, the central banks of Germany, France, the Netherlands, Luxembourg and Finland accept Danish securities as collateral. The CCBM agreement is a mutual agreement in the sense that branches in Denmark of foreign banks may also obtain credit in euro from Danmarks Nationalbank against collateral as securities held in safekeeping accounts in the euro area that are approved by the ECB (CCBM assets, cf. the list below). This facility is not used in practice, however.

The Danish securities eligible for use as collateral under CCBM correspond to the collaterisation basis on the krone side, cf. above. However, for administrative reasons an outstanding amount of at least kr. 10 billion is required. The list currently comprises approximately 30 securities codes with a total outstanding amount of more than kr. 1,000 billion.

The collateral value of the Danish securities pledged as collateral is calculated by the central bank in the euro area which grants the credit facility, on the basis of the ECB's rules.

Maximum intraday amount in euro
As on the krone side, the maximum intraday amount in euro is calculated residually as follows:

Collateral value after margin of VP-registered assets
+ collateral value of CCBM assets
+ balance of yield account (any withheld drawings)
= Total collateral value after margin of pledged assets
- other credit facilities
= Maximum intraday amount, but not exceeding the allocated limit, cf. below
+/- euro current account balance
= Disposable amount

The maximum intraday amount of an account holder can never exceed the account holder's individual limit for euro-denominated intraday overdrafts. The individual limits are allocated according to the following guidelines: if the sum of the participants' requested intraday overdrafts in euro is within the overall limit, currently euro 650 million as stated, the limit requested by each participant is granted. Should the sum of the participants' requested limits exceed the total limit, a limit is allocated to each participant on the basis of the participants' relative shares of the TARGET connection fee.

Overdrafts on the euro current account must be covered by no later than 5.15 p.m. Otherwise, interest will be charged to the account holder. Further interest will be charged if the account holder has failed to cover the overdraft before TARGET's normal closing at 6.00 p.m.

Settlement of payments in Swedish kronor
In addition to the payment infrastructure developed to handle payments in euro in the Danish financial system, a special settlement infrastructure has been developed for payments on bonds denominated in Swedish kronor, listed on the Copenhagen Stock Exchange and registered at VP. This settlement concept is similar to the infrastructure for krone and euro payments. With a view to the settlement of periodic payments in Swedish kronor each participant holds a VP settlement account in Swedish kronor at Danmarks Nationalbank. The participants transfer liquidity to the settlement account before each settlement. The participants transfer funds to Danmarks Nationalbank's account at Sveriges Riksbank, which in this way is the correspondent bank of Danmarks Nationalbank. On the basis of the balance of the settlement account, Danmarks Nationalbank notifies VP of the maximum drawing right, and VP undertakes clearing, provided that the net position of each participant does not exceed the overdraft limit. Danmarks Nationalbank then books the participants' net positions to their settlement accounts. Disbursements are made from the settlement accounts via Danmarks Nationalbank's account at Sveriges Riksbank.

Conclusion

The terms and conditions for accounts at Danmarks Nationalbank are the formal framework for the access to and use of accounts at Danmarks Nationalbank. The terms and conditions specify the overall framework for the extension of credit by Danmarks Nationalbank and the pledging of collateral to Danmarks Nationalbank, as described above. Danmarks Nationalbank intends this framework to be as smooth and appropriate as possible, in accordance with international standards and practice. With regard to the payments system, where Danmarks Nationalbank's operational role is primarily to act as settlement bank, Danmarks Nationalbank cooperates with the account holders' organisations as well as the clearing systems on the ongoing development of the Danish settlement infrastructure.

The terms and conditions are updated and adjusted on an ongoing basis, e.g. in connection with the introduction of new IT systems and new national and international legislation.

Administration of the terms and conditions is undertaken by Danmarks Nationalbank's Accounting department.

Footnotes

[1] During daytime hours the Danish Securities Centre (VP) also offers "real-time settlement", i.e. gross settlement of securities trades.

[2] Dispensation may be granted from the requirement concerning DN-F.

[3] Cf. "The single monetary policy in stage three", ECB, November 2000.

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Version 1.0 December 2001 Nationalbanken.
Published by Danmarks Nationalbank December 2001, http://www.nationalbanken.dk