Norway offers 43 billion pound liquidity to bolster banks

By Terje Solsvik

OSLO (Reuters) - Norway's government and central bank introduced new measures on Sunday to boost banks' liquidity and their ability to fund themselves, including plans for up to 350 billion crowns (43.75 billion pound) in new government bonds.

Banks will be able to swap covered bonds, including mortgage-backed securities, into the new government bonds, which can then be used as collateral for central bank liquidity.

Because oil-rich Norway runs huge budget surpluses, the amount of government bonds is limited. Analysts said the plan, which shifts risk from banks to the government, would help, but it was not clear if it was sufficient.

The announcement came three days before the central bank, Norges Bank, is due to hold an extraordinary interest rate meeting where it is widely expected to cut interest rates.

It coincided with a weekend meeting of the G7 major industrialized countries that was aimed at shoring up financial markets.

"The Norwegian authorities are prepared to launch the measures necessary to secure confidence in the Norwegian banking system," Prime Minister Jens Stoltenberg told a news conference.

"This facility is tailored to the needs of Norwegian banks and in conformity with the G7 statement on financial stability earlier this weekend," he said, adding that the government would monitor the situation and launch new measures if needed.

Norges Bank said it would offer banks a new longer-term, two-year liquidity loan, known in Norway as "F-loans." The new loan is aimed at smaller banks. Until recently, Norges Bank mainly offered daily and weekly liquidity.