Short-term funding in foreign currency by major Swedish banks and their use of the short-term currency swap market

Date 11/03/2014

Ida Hilander analyses the major Swedish banks' short-term funding in foreign currency, which is very extensive. One reason for this is that their customers need foreign currency to fund and currency hedge foreign assets, while the banks need access to funding in kronor. By exchanging foreign currency for kronor in so-called currency swaps the banks can satisfy their customers' need for foreign currency as well as their own need for kronor. However, this also leads to refinancing risks for the financial institutions that use swaps at short maturities despite the fact that their investments are long term. The article discusses potential ways of reducing these risks.

 

The article is included in this year's first issue of the Sveriges Riksbank Economic Review, which was published on 6 March.