Nordic Central Banks Conclude MoU on Financial Crisis Management

At their meeting in Stykkishólmur, Iceland, on June 11, 2003, the Governors of the central banks of Denmark, Finland, Iceland, Norway and Sweden signed a Memorandum of Understanding (MoU) on financial crisis management. The MoU is applicable when a severe problem occurs in a bank which is domiciled in a Nordic country and has cross-border establishments in other Nordic countries.

The experience gained from banking problems in some Nordic countries in the early 1990s clearly showed the need for central banks to act quickly in a bank crisis situation. In recent years, a number of banks have established themselves outside their countries of domicile - including several banks in the Nordic area - and this makes it necessary for central banks to undertake joint analysis, discussion and action in the event of a financial crisis.

The MoU is applicable to a crisis in any bank, which is domiciled in a Nordic country and has at least one cross-border establishment in the area. The MoU deals only with the cooperation between the central banks and does not affect other international agreements, such as the agreement on crisis management between the central banks and national bank supervisory authorities in the European System of Central Banks (ESCB). Nonetheless, the MoU clearly points out the need for close cooperation between the central banks and the bank supervisors on a continuous basis, but particularly in a crisis situation.

The focus of the Nordic MoU is on practical arrangements. It states that any central bank may call for a meeting of a "crisis management group" comprising high-level central bank officials. Furthermore, it indicates which central bank should take the leading role and outlines the contacts that need to be made with bank supervisors, ministries of finance, bank managers and other parties. The MoU also specifies which information should be obtained and analysed from the bank concerned. Finally, the MoU calls for coordination of the information which the central banks provide to outside parties.

Since each individual crisis situation is different, the MoU does not indicate which remedial measures will be taken. However, since the MoU concerns cooperation between central banks, the possibility to provide liquidity will be a main issue.

The MoU will be available on the homepages of the central banks during next week. For more information on the MoU, contact Deputy Governor Lars Nyberg, Sveriges Riksbank, tel. +46-8 787 0108.