Collateral for credit facilities
Danmarks Nationalbank provides credit to account holders with Danmarks Nationalbank. Credit can be in the form of so-called monetary policy loans, loans concerning cash depots and intraday credit in Danish kroner. For all types of credit, Danmarks Nationalbank requires the pledging of collateral.
Account holders can provide collateral in various ways.
Traditional pledging of collateral
Account holders can provide collateral for all types of credit in Danish kroner through the traditional pledging of securities. The provision of securities as collateral takes place by transferring securities to a custody account with Euronext Securities pledged to Danmarks Nationalbank. Based on the value of the pledged securities, the account holder is granted a drawing right for credit facilities in Danish kroner equivalent to the collateral value thereof.
Other forms of collateral – for intraday credit only
In the case of intraday credit in Danish kroner, account holders can also provide collateral in ways other than traditional pledging, among other things using:
Certificates of deposit
The account holder’s certificates of deposit are automatically included in the drawing right for intraday credit in Danish kroner.
Collateral Rights Account
Account holders may provide securities deposited in one or more custody accounts with Euronext Securities, typically trading accounts, as collateral for intraday credit in Danish kroner. Find more information in ‘Terms and Conditions for Use of Automatic Collateralisation at Danmarks Nationalbank’, which is part of Danmarks Nationalbank’s terms and conditions for accounts.
The account holder may raise intraday loans in Danish kroner to purchase securities and implement periodic payments on T2S against collateral in purchased or other eligible securities. Find more information in ‘Terms and Conditions for the Use of T2S Auto-Collateralisation Loans in Danish Kroner at Danmarks Nationalbank’, which is part of Danmarks Nationalbank’s terms and conditions for accounts.
Scandinavian Cash Pool
Liquidity in one Scandinavian central bank may be provided as collateral for intraday credit from another Scandinavian central bank by separate agreement.
Securities eligible for use as collateral in the euro area
Bonds issued through Euronext Securities that meet the ECB’s eligibility requirements may be used as collateral in the euro area once they have been approved and included in the ECB’s list of securities eligible for use as collateral. The securities must be approved by the central bank of the country in which the securities are admitted to trading and official listing, i.e. Danmarks Nationalbank for securities admitted to listing on NASDAQ OMX Copenhagen.
Securities eligible as collateral for credit facilities in Danish kroner
Traditional pledging of collateral can be broken down into:
- Securities issued by the Kingdom of Denmark.
- Bonds guaranteed by the Kingdom of Denmark.
- Bonds issued by KommuneKredit.
- Mortgage bonds (ROs), covered bonds (SDOs) and covered mortgage bonds (SDROs) issued by institutions subject to the Danish Financial Business Act.
- Bonds issued by Føroya Landstýri (the government of the Faroe Islands).
The securities must be registered with VP Securities and traded at NASDAQ OMX Copenhagen.
At the request of the account holders and subject to specific assessment, Danmarks Nationalbank may also include other assets in the collateral basis for credit facilities in Danish kroner.
The collateral value of the securities is calculated on the basis of their official price on NASDAQ OMX Copenhagen on the preceding day, including accrued interest, less a securities-specific valuation haircut. If an asset has not been traded on the previous banking days, a theoretical price set by Danmarks Nationalbank is used for the calculation of its collateral value.
When Danmarks Nationalbank determines the haircut, eligible securities are divided into four liquidity categories:
- Category 1: Securities issued by the Kingdom of Denmark.
- Category 2 (inactive at present): ROs, SDOs and SDROs with a circulating volume of more than 1 billion euro or the equivalent value in Danish kroner. The bonds must also be comprised by a price-quoting system approved by Danmarks Nationalbank for this purpose and have at least three price quoters.
- Category 3: Other ROs, SDOs and SDROs, as well as bonds guaranteed by the Kingdom of Denmark and bonds issued by KommuneKredit.
- Category 4: Bonds issued by the government of the Faroe Islands.
Securities with a fixed or variable coupon rate are assigned haircuts according to following table:
|Remaining maturity||Category 1||Category 2||Category 3||Category 4|
|0-1 year||0.5 per cent||1.0 per cent||1.5 per cent||4.0 per cent|
|1-3 years||1.0 per cent||1.5 per cent||2.0 per cent||6.0 per cent|
|3-5 years||1.5 per cent||2.5 per cent||3.5 per cent||8.0 per cent|
|5-7 years||2.0 per cent||3.5 per cent||4.5 per cent||10.0 per cent|
|7-10 years||3.0 per cent||4.5 per cent||6.0 per cent||12.0 per cent|
|>10 years||5.0 per cent||8.0 per cent||9.0 per cent||14.0 per cent|
When a theoretical price is used, an additional haircut of 5 per cent is deducted for all types of securities, except for securities issued by the Kingdom of Denmark. An exchange-rate haircut of 3 per cent is deducted when securities in euro are pledged as collateral for credit facilities in Danish kroner.