Relaxing collateral standards presents risks

By accepting poorer collateral central banks can reduce banks' incentives to hold sufficient amounts of higher-quality assets, said Stefan Ingves, the governor of the Sveriges Riksbank.

If the central bank takes over some of the functions of interbank markets, there is also a risk that banks which are essentially creditworthy will suffer liquidity problems as the access to short-term financing in the interbank market will disappear, argued Ingves.

In Sweden, there was so far no reason for the

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