In recent years, a number of weaknesses in the Norwegian system for the management of banks’ reserves have been revealed. With a view to remedying these weaknesses, Norges Bank is seeking to revise the system.

Under the new system, the interest rate on a defined volume of deposits in Norges Bank (a quota) will be equivalent to the key policy rate. The interest rate on deposits in excess of the quota will be lower. This will provide banks with a stronger incentive to redistribute reserves in the interbank market and enhance the efficiency of the overnight market in Norwegian kroner. Changes in the system for the management of banks’ reserve must also be seen in the light of Norges Bank’s consultative document submitted to Finance Norway (FNO) on 6 October 2010 “The quoting of interbank rates – NIBOR”, where the new regulation for NIBOR quoting is discussed.   

Under the new system for the management of banks’ reserves, banks will be divided into three groups. Each group will be assigned a quota that is distributed equally among the banks in the group. The quotas for each group are set in relation to the total assets of the banks in the group. A more detailed account of the changes and the new system is provided in the consultative document attached.

The consultative document will be published on Norges Bank’s website. The consultation is open and anyone with viewpoints on the matter may submit comments. The submission deadline is Wednesday 17 November 2010.

Sincerely

Svein Gjedrem

Kristine Falkgård

Copy:  Finanstilsynet (the Financial Supervisory Authority of Norway)