Information class:
Non sensitive
Financial and Risk Policy 2017
Adopted by the Board of the Debt Office on 13 December 2016
Reg. no 2016/1069
Changed by the Board of Debt Office on 17 February 2017
Contents
Introduction
3
1
Management of risks in the Debt Office
4
2
Management and payment of the central government debt process
5
3
Retail market borrowing process
10
4
Central government liquidity management process
11
5
Government guarantees and lending process
13
6
Credit risks
15
7
Operational risk
18
Annex 1 – Risk map
19
Annex 2 – Definitions
20
Annex 3 – Certain calculation methods
22
Annex 4 – References
24
2
Introduction
Under the Ordinance (2007:1447) containing Instructions for the National Debt Office there has to be a
description of the main risks associated with the operations of the Debt Office and of how to manage
these risks. There also have to be internal instructions for managing these risks. The description, the
internal instructions and compliance with the instructions are to be kept under continuous review. The
Ordinance containing Instructions for the National Debt Office also state that the Board is to adopt
frameworks and guidelines for the risks associated with the Debt Office’s operations.
The Financial and Risk Policy supports the Debt Office’s risk management and its internal control. The
policy provides an overview of the Debt Office’s management of risks and the level of risk selected. The
policy brings together rules, frameworks and benchmarks for managing risks that arise in the operations
of the Debt Office. It also sets out certain principles for the conduct of operations. The annual review,
reconsideration and adoption of this policy establish a process that ensures that the policy remains upto-date and relevant.
The issuance of guarantees and credit in the Government guarantees and lending process is preceded
by separate decisions by the Riksdag (the Swedish Parliament) and the Government. This means that
the level of risk in these operations is largely governed by the commitments decided by the Riksdag and
the Government
There is a separate decision-making body in the Debt Office called the Resolution Board. The
Resolution Board makes decisions on questions to be examined by the Debt Office under the
Resolution Act (2015:1016), as the support authority under the Precautionary Government Support to
Credit Institutions Act (2015:1017) or as the guarantee authority under the Investor Compensation Act
(1999:158) and the Deposit Guarantee Act (1995:1571) if the questions concern matters of principle or
are of major importance or relate to regulations. The Financial stability and consumer protection process
is therefore not included in the Financial and Risk Policy.
The risks covered by the Financial and Risk Policy are identified in the risk map (annex 1). Market risks
are mainly managed within the framework of the Management and payment of the central government
debt process and are therefore described in that section (section 2). Credit risks and operational risks
are described in separate sections (sections 6 and 7). Security risk is managed in accordance with the
Debt Office's Security Policy. Business risk, external risk and strategic risk are not given separate
sections but are mainly managed within the framework of other risks (see annex 2). It should also be
noted that there is no separate process for identification and management of reputational risk. Instead
this risk is taken into account in connection with impact assessments of other risks.
The policy sets out board decisions. Discussions and analyses underlying these decisions are to be
found in separate documents. There is a list of these documents in annex 4. Operational decisions that
follow from this policy are made by the Director General or officials in accordance with delegation
procedures set out in the rules of procedure of the Debt Office and the relevant departments.
3
1 Management of risks in the Debt Office
1.1
Framework
Identification
Risk identification is based on what has happened and what
can happen.
The purpose of risk management work is to identify and
manage risks that affect achievement of the Debt Office’s
objectives.
Assessment
Risk management provides a readiness to act and the ability
to plan and execute activities to manage risks. To achieve
this, the risks must be known and the measures the Debt
Office chooses to take or not to take must be the result of
conscious decisions. Risk management therefore makes it
possible to take decisions balancing costs and risks.
The assessment of the risks identified takes account of
probability and impacts. Quantitative measurement methods
can be used for assessment of certain risks, such as credit
risks and market risks. Other risks, such as operational risks,
are more difficult to quantify but same process structure is
used to identify, assess and manage them.
Objectives
Measures and priorities
The Debt Office is to have good internal control through
effective and appropriate risk management in accordance
with market practice. In its management of financial and
operational risks the Debt Office is to meet the requirements
relevant to its operations set in the legislation for financial
companies and in the regulations and general advice issued
by Finansinspektionen (the Swedish financial supervisory
authority).
After the risk has been identified and assessed the following
courses of action are available:
1.2
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eliminate the risk
limit the risk
transfer (insure) the risk
retain the risk without taking any measures.
The choice depends on how the particular risk has been
assessed, and on what risk level has been decided on. A
trade-off is made between expected cost and risk.
The Debt Office’s risk management
process
The Debt Office is to have a systematic process for risk
management. The process builds on five steps.
Implementation
The measures decided on to achieve the level of risk
selected are handled by the Debt Office's operations.
Identification
Reporting and monitoring
Reporting and
monitoring
Implementation
The effects of the risk management measures taken are
monitored, evaluated and reported.
Assessment
Measures and
priorities
4
2 Management and payment of the
central government debt process
General framework
This means that the Debt Office must establish intermediate
objectives and internal guidelines for the operational
management of the central government debt. The Financial
and Risk Policy translates the Government's guidelines
decision for the management of the central government debt
into operational decisions that guide ongoing borrowing and
debt management. To increase clarity some of the
Government guideline decisions are reproduced in the
Financial and Risk Policy.
The management of the central government debt is governed
by the Budget Act (SFS 2011:203). That Act sets out the
objective for the management of the central government debt
and the purposes for which the Government may raise
loans.1
The Act also states that the Government shall adopt
guidelines for the management of the central government
debt each year. The Government's decision reflects a
desired trade-off between the expected cost and risk of the
debt. Under the Act the Government also has to present an
evaluation of the management of the central government
debt to the Riksdag every other year.
2.1
Principles for management of
central government debt
Debt and market maintenance
The Government's guidelines state that the Debt Office is to
contribute through market and debt maintenance, to reducing
the costs of the central government debt. The Financial and
Risk Policy establishes principles for debt and market
maintenance that guide the management of the central
government debt. These principles show how the Debt Office
will contribute to the development and maintenance of wellfunctioning government securities markets, which is
necessary to achieve the overall objective of cost
minimisation taking account of risk.
The Government has delegated the right to raise loans and
the responsibility for the ongoing management of the central
government debt to the Debt Office.
Objectives
Under the Budget Act the objective is to manage the central
government debt in such a way as to minimise the cost of the
debt in the long-term while taking the risk in its management
into account. The management of the debt is also to be
conducted within the framework of monetary policy
requirements.
The following principles are to provide guidance:

Decision of the Debt Office
The Government's guidelines decision for the management
of the central government debt means that Debt Office is
responsible for taking strategic decisions within the
framework of the guidelines and for the implementation of
these decisions in the operational management of the central
government debt. The Debt Office is to establish internal
guidelines based on the Government’s guidelines. These
decisions are to concern the use of the position mandate, the
foreign currency distribution in the foreign currency debt and
principles for market and debt maintenance.
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1
Loans may be raised to: finance current deficits in the central government
budget and other expenditure based on decisions of the Riksdag (Swedish
Parliament); provide credits and perform guarantees decided by the Riksdag;
amortise, redeem and buy back central government loans; meet the need for
central government loans at different maturities in consultation with the Riksbank;
and satisfy the Riksbank’s need for foreign currency reserves.
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5
The Debt Office will act responsibly in all contexts. This
includes always treating counterparties in an impartial
and objective way and avoiding transactions that may
result in damage to the reputation of the Debt Office or
the Swedish State. The requirement of a responsible
approach is reinforced in the domestic krona market by
the Debt Office’s position as the dominant participant.
The Debt Office will be as consistent, predictable and
open as possible in its information to and
communication with the market, particularly markets for
bonds and T-bills denominated in Swedish kronor.
The Debt Office’s borrowing will be characterised by
transparency and predictability.
The central government debt will be spread over several
loans and maturities in order to limit the refunding risk.
The Debt Office will seek to broaden the investor base
for Swedish government securities.
The Debt Office will have borrowing and sales channels
that are efficient and have a positive impact on the
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functioning of the market in Swedish government
securities.
The Debt Office will support the liquidity of the
government securities market by providing repo and
switch facilities.
The Debt Office will work to ensure that infrastructure is
in place that enables the market in the Swedish
government securities to functioning effectively.
more than twelve years to maturity is reported. Deviations
are supplemented with an explanation of the sequence of
events.
2.2.2
The Government has determined that the share of inflationlinked krona debt is to be 20 per cent of the central
government debt in the long term. This share is calculated
using nominal amounts at the present exchange rate
including accrued compensation for inflation.
Entering into transactions
The purpose of the following principle is to reduce the
operational risk in the management of the central
government debt.

Inflation-linked krona debt
The Government has established that the maturity of the
inflation-linked krona debt is to be between 6 and 9 years.
The maturity may deviate temporarily from the maturity
interval.
The Debt Office may only enter into transactions that it
has the competence, systems and routines to handle.
Reporting to the Board
Management of the foreign currency debt
The share and maturity of the inflation linked krona debt are
reported as one-month moving averages of daily
observations. Deviations are supplemented with an
explanation of the sequence of events.
The purpose of the following principle is to reduce the risk
that transactions cannot be valued continuously.

In managing the foreign currency debt, the Debt Office
will act in markets which are liquid and well developed.
If derivative transactions can be made that lead to the
elimination of market risk in a borrowing transaction,
lower liquidity requirements in the market in the
borrowed currency can be accepted.
2.2
2.2.3
The Government has determined that the foreign currency
exposure of the central government debt is to decrease. The
decrease is to be no more than SEK 30 billion per year.
The Government has determined that the maturity of the
foreign currency debt is to be between 0 and 1 years. The
maturity may deviate temporarily from the maturity interval.
Composition and maturity of central
government debt
The steering of the composition and maturity of the central
government debt is described below. Maturity refers to the
Macaulay duration (see annex 3).
2.2.1
Foreign currency debt
Currency benchmark
The currency benchmark specifies how the exposure in
foreign currency is to be distributed between different
currencies. This exposure is measured as the nominal
amount expressed in each foreign currency.
Nominal krona debt
The nominal krona debt is the part of the central government
debt that is not inflation-linked krona debt or foreign currency
debt.
In 2017 the total exposure in foreign currency is to decrease
by approximately SEK 20 billion through the exchange of
CAD 720 million, EUR 520 million, GBP 400 million and USD
600 million. The reduction of exposure in these currencies is
the reduction decided by the Government of the foreign
currency exposure and is to be carried out evenly over the
quarter. The exposure in other currencies is to be
unchanged. But the exposure in EUR, which is steered
indirectly by the exposure in the other currencies and the
total foreign exchange exposure, is to be allowed to vary (see
table 1).
The Government has determined that the maturity of the
nominal krona debt for instruments with maturities of up to
twelve years is to be between 2.9 and 3.9 years. Its maturity
may temporarily deviate from this maturity interval.
For nominal krona instruments with maturities of more than
twelve years, the Government has determined that the longterm benchmark for the outstanding volume is to be SEK 70
billion.
Reporting to the Board
The maturity of instruments with maturities of up to twelve
years is reported as one-month moving averages of daily
observations. The outstanding volume of instruments with
6
Table 1. Foreign currency benchmark at the end of 2016 and 2017
respectively. The amounts are expressed in million units of
each foreign currency

The Debt Office is permitted to take positions in
foreign currency and the krona exchange rate.
Currency

Positions in foreign currency may only be taken
using derivative instruments.

Positions must not be taken in the Swedish fixed
income market.

Positions are transactions that are intended to
reduce the costs of the central government debt
while taking account of risk, or to reduce the risks
for the central government debt while taking
account of cost, and that are not justified by
underlying borrowing or investment requirements.

Positions may only be taken in markets that permit
the management of market risk through liquid and
otherwise well-developed derivative instruments,
which are potentially a borrowing currency in the
context of debt management.

Positions in foreign currency are limited to SEK
300 million, measured as daily Value-at-Risk (VaR)
with a 95 per cent probability. The Debt Office is to
decide how much of this volume may be used at
most in its ongoing management.

Positions in the krona exchange rate may not
exceed a maximum of SEK 7.5 billion and are to
be built up or wound down gradually and
announced in advance.

The Debt Office decides how much of this volume
may be used at most in ongoing management in
connection with exchanges between the krona and
other currencies. This volume is to be of a limited
size and the positions do not need to be
announced in advance.

Positions are not included in the calculation of debt
shares and maturities.
31/12/2016
31/12/2017
EUR
Residual
Residual
USD
-1 240
-640
GBP
-830
-430
CHF
-4 840
-4 840
CAD
-1 440
-720
The Director General determines deviation intervals for the
currencies included in the benchmark and to what extent
there may be exposures to currencies not included in the
benchmark.
Maturities for individual currencies
The maturities of the individual currencies whose exposure
exceeds the equivalent of SEK five billion are to be between
0 and 1 year. Their maturities may temporarily deviate from
the maturity interval. Interest rate refixing is to be distributed
evenly over time.
Reporting to the Board
Foreign currency exposure is reported on a daily basis.
Maturities are reported as one-month moving averages of
daily observations. The reduction of the foreign currency
exposure in CAD, EUR, GBP and USD is reported in both
foreign currency and Swedish kronor calculated using the
exchange rate on 30 November 2016. Deviations are
supplemented with an explanation of the sequence of events.
2.3
Exchanges between Swedish kronor
and foreign currency
An even exchange path for the Debt Office’s exchanges
between the Swedish krona and foreign currencies is
intended to provide predictability and clarity about the Debt
Office’s presence in the krona exchange market. By
spreading transactions to multiple occasions, dependence on
the exchange rate on particular occasions is also reduced.
The exchange path is to be determined by spreading the net
exchange volume evenly over time. Exchanges made in
connection with possible positions between kronor and
foreign currency are excluded.
2.4.1
Positions in foreign currency debt
Purpose
Minor deviations from the exchange path are permitted.
The accumulated exchange path determined and the actual
accumulated exchanges are reported regularly.
The main purpose of the Debt Office’s position taking in
foreign currency is to achieve cost savings or reduce the risk
in the management of the central government debt by taking
positions based on assessments of future interest rates and
exchange rates within defined risk limits
2.4
Objective
Reporting to the Board
Position taking
The objective is to achieve a positive result or lower risk.
The Government has decided that:
7
Portfolio size
Internal continuous management
The positions in foreign currency are taken in portfolios with a
notional total nominal value equivalent to SEK 200 billion.
Portfolio size
The Debt Office’s own positions in foreign currency can be
taken in a portfolio corresponding to a notional value of no
more than SEK 200 billion less the amounts managed by the
external managers.
Portfolios
Positions are taken within the Debt Office (“internal
continuous management”) and through external managers
(“external continuous management”).
Risk mandate
The transactions of each external manager and internal
management are kept apart and placed in separate
portfolios. Each portfolio has a separate risk and result
measurement.
Permitted markets
Of the VaR amount decided by the Government, a maximum
of 220 million SEK (daily VaR with a 95 per cent confidence
level) less the amount allocated to external managers is
allocated to the internal continuous position taking. The
currency limits for each currency are ±6.0 per cent of the size
of the portfolio.
Currency and interest-rate positions may be taken in the
following currencies and markets: Australia, Canada,
Switzerland, Denmark, United Kingdom, Japan, Norway,
United States, and in the euro.
The interest rate risk limit measured in SEK is ± 0.90 per cent
of the size of the internal portfolio. The interest rate risk limit
for each currency is ±0.60 per cent of the size of the portfolio.
Measurements and calculation
External continuous management
The risk is measured as daily Value-at-Risk (VaR) at a 95 per
cent confidence interval.
Purpose
The purpose of the external management is:
The VaR limits are supplemented with limits for currency
positions expressed in per cent of the notional amount that is
subject to active management. In addition, a statement is
given of how much interest rate positions may affect the total
duration of the notional amount subject to active
management and how much interest rate positions in
individual currencies may affect the duration of individual
currencies.
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Benchmarking: a measure against which the internal
result can be compared.
Return: the possibility of increasing the return/reducing
costs in the long term and reducing fluctuations in the
result.
Knowledge and information: access to information and
the managers’ experience and expertise.
The return is measured as change in the market value of the
portfolios (including accrued interest) plus realised flows.
Number of mangers
Evaluation horizon
Portfolio sizes
The result of positions in foreign currency is presented
annually. The evaluation is carried out over the past five-year
period.
Up to a notional amount equivalent to SEK 40 billion of the
foreign currency debt is managed externally.
There are at least three external managers at any given time.
Risk mandate
Reporting to the Board
The external managers may be allocated a risk volume
totalling 20 per cent of the total VaR limit, i.e. SEK 44 million
per day.
The result and outstanding positions and VaR usage in
position taking in foreign currencies are reported
continuously.
Deviations from the risk mandate are reported.
The currency limits for each currency are ±6.0 per cent of the
portfolio allocated.
The Debt Office's VaR model is evaluated once a year by
comparing the actual and forecast outcome (“back-testing”).
The result of back-testing of the VaR model is reported
annually.
The interest rate risk limit measured in SEK for each portfolio
is ± 0.90 per cent of the amount allocated. The interest rate
risk limit for each currency in the same portfolio is ±0.60 per
cent of the size of portfolio.
8
Time horizon
a summary of managers that have been added to or left the
group are presented at least once a year. The reasons for
selecting and dismissing managers are described. An annual
evaluation is made of whether the purpose of external
management has been achieved
To enable comparisons to be made with the Debt Office’s
internal management, managers should be offered the
possibility of long-term management. The objective should be
for an external manager to work for the Debt Office for a long
period of time (at least about three years). Otherwise, the
same evaluation horizon as described above is applicable.
2.4.2
Reporting to the Board
Exchanges between Swedish kronor and
foreign currency
The limit for position taking in relation to the exchange path is
zero.
An in-depth report on the external managers’ performance
and operations, in addition to their financial performance, and
9
3 Retail market borrowing process
General framework
The prizes on Lottery Bonds are exempt from tax under
Chapter 8, Section 3, of the Income Tax Act and the Lottery
Tax Act (1991:1482), which states that lottery tax is not paid
on lottery bond prizes. This does not mean that the prizes are
tax subsidised, since the tax exemption is taken into account
when the interest rate is set on a lottery bond loan. Lottery
bonds are also exempted from the Lotteries Act (1994:1000)
so the Debt Office does not need to apply for a licence for
these operations.
National Debt Savings are account-based savings with a
fixed or floating interest rate. Accounts with floating rates
were wound up in November 2015.2 Fixed rate accounts
have been closed for new account holders while existing
accounts will run to maturity.
Objective
The Government states in its guidelines for the management
of the central government debt that the Debt Office is to
contribute through retail market borrowing to reducing the
costs of the central government debt in the long term
compared with equivalent borrowing in the institutional
market.
Principles for retail market borrowing
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The processes through which the products are
managed have to take account of good control.
The products have to be easy to understand so as to
create confidence among savers and thus increase
sales.
Lottery bond dealers have to be financially stable and
must not act in a way that could have an adverse impact
on the Debt Office’s reputation.
Reporting to the Board
The result of retail market borrowing is reported continuously.
2
Several depositors have not given an account or a correct account so it has not
yet been possible to make payments to all depositors.
10
4 Central government liquidity
management process
General framework
Objectives
Under the Ordinance (2007:1447) containing Instructions for
the Swedish National Debt Office one of the main tasks of
the Debt Office is to be responsible for the central
government payment model, including the treasury single
account. The Debt Office also has the task of providing loans
to and accepting funds on account from, primarily,
government agencies.
One of the Government’s overall objectives for the Debt
Office is for the state payment model as a whole to be costeffective and secure at the same time as services to
government agencies are good and the state’s relation to the
banks is neutral in terms of competition.
Deposits from and lending to government agencies are to
take place on terms based on central government's
borrowing costs. Currency exchange transactions carried out
by the Debt Office on behalf of government agencies are to
be based on central government's currency exchange costs.
The Capital Supply Ordinance (2011:210) governs how these
agencies are entitled and obliged to fund assets through
loans at the Debt Office. Under the Ordinance, the Debt
Office also has the task of transferring appropriations to the
agencies’ interest-bearing accounts.
Principles for central government liquidity management
The purpose of these principles is to achieve efficient and
secure liquidity management both for the individual agency
and for central government as a whole.3 This means that:
Under the Ordinance (2006:1097) on Government Agency
Payments and Fund Management (the Payment Ordinance),
the Debt Office is responsible for the treasury single account
(the central government’s central account at the Riksbank).
This Ordinance contains rules on agency accounts,
payments, management of funds and exchange hedges.

Effective payment services and centralised liquidity
management play an important part in making the payment
model effective for both government agencies and central
government as a whole. The Debt Office has chosen to
divide the payment services into three framework
agreements: a framework agreement for payment services, a
framework agreement for charge cards, travel accounts and
procurement cards and a framework agreement for prepaid
card services. The framework agreement for payment
services is the one that covers government agencies’
incoming and outgoing payment services and that is usually
directly linked to the payment model. Credit risks associated
with the agreement are dealt with in 6.2. The other two
framework agreements do not contain any appreciable credit
risk. However, there is a reputational risk if, for example, one
party to the agreement does not deliver as agreed. All the
agreements have a termination clause that entitles the Debt
Office to terminate the agreement.

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3
All daily incoming and outgoing payments in the
activities financed via the central government budget
are gathered in the treasury single account at the
Riksbank or in the Debt Office's currency accounts.
Transactions in the treasury single account are
recorded in Swedish kronor.
Government agencies' bank accounts have to be linked
to the Debt Offices top accounts in the banks with which
the Debt Office has reached framework agreements for
payment services.
A government agency that wishes to open or alter a
bank account has to apply to the Debt Office to do so.
The Debt Office is allowed to grant exemptions from this
requirement.4
In the case of accounts linked to a multi currency cash
pool structure in foreign currency, incoming and
These principles are mainly taken from the Payment Ordinance The principle
that the Debt Office has to consent to and act as an intermediary for payments for
the European Commission is based on a Government decision of 31 May 2001.
The following four principles are based on the Debt Office’s own decisions: that
FX forwards may primarily be arranged in the currencies included in the Debt
Office’s currency benchmark; the examples given of the requirements on the
security of payment intermediaries and services; and that the agencies are
responsible for the security of their payments, including matters relating to
authorised use and access to reserve procedures.
Under the Ordinance on Administration of the Contribution to
the European Union Budget (2004:1333) the Debt Office is
responsible both for coordination of payments to the
European Commission and for the administration of an
account in the name of the Commission for crediting the
contribution.
4
Before a decision is made on amendments to the Payment Ordinance (reg. no
2016/638) this requirement is not applied to all types of accounts.
11
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outgoing payments in the Debt Office's main currencies
are gathered in currency accounts.5
In the case of accounts not affiliated to the multi
currency cash pool structure, the government agency
has to make exchanges from or to Swedish kronor for
every single payment in foreign currency.
If an FX forward is required for currency flows, the
agency has to contact the Debt Office. FX forwards can
be arranged in the first place in the currencies included
in the Debt Office's benchmark portfolio.6
The approval of the Debt Office is required for the
intermediation of payments direct to the Government's
central account.
The Debt Office is to adopt regulations and general
advice regarding the Payment Ordinance.
The Debt Office is to procure framework agreements
with payment intermediaries with which government
agencies will have to place orders to meet their needs
for payment services.
In these framework agreements the Debt Office sets
requirements concerning the level of security of the
payment intermediaries and payment services.
Government agencies may only sign separate
agreements for payment services outside the central
government framework agreements after approval by
the Debt Office.
Government agencies are responsible for their
payments and for ordering services under framework
agreements; this responsibility includes correct payment
commissions, authorised use and access to reserve
procedures in the event of interruptions and disruptions.
The Debt Office is to analyse the risks in the payment
model each year. Every other year the Debt Office is to
submit a report on these risks to the Government. Tools
for strengthening the security of the payment model
include amended regulations to the Payment
Ordinance, the framework agreements and training and
information for agencies.
5
The multi currency cash pool structure is being introduced as of 1 April 2017.
Government agencies' bank accounts in the Debt Office's main currencies will be
affiliated to the multi currency cash pool structure in stages. At present the main
currencies are EUR, GBP, JPY, CHF, USD, NOK och DKK.
6
See section 2.2.3 Foreign currency debt
12
5 Government guarantees and lending
process
General framework
credit losses incurred. The part that relates to administrative
costs is available to the Debt Office to cover running
administrative expenses.
Under the Budget Act (2011:203) the Riksdag decides on the
purpose and amounts of state guarantees and loans. A fee or
interest is levied that corresponds to the central
government’s expected loss and other costs for the
commitment. The provisions in the Budget Act on
government loans mean that loans and guarantees are
treated equally in all essential respects. Riksdag decisions on
new guarantees or lending are followed by a government
decision to the agency responsible setting out the
commission and conditions in detail. To a great extent the
Debt Office outstanding guarantees and lending have been
preceded by specific decisions of the Riksdag and the
Government. This means that the level of risk in the portfolio
is governed to a great extent by commitments decided by the
Riksdag and the Government.
Government guarantee operations are divided between four
agencies; the Debt Office, the Swedish Export Credits
Guarantee Board (EKN), The Swedish National Board of
Housing, Building and Planning (Boverket) and the Swedish
International Development Cooperation Agency (Sida).
Lending operations are, in turn, mainly divided between the
Swedish Board for Study Support (CSN), the Debt Office and
Sida, but a handful of other agencies also handle
government loans to a lesser extent.
Since 2011 the Debt Office has been commissioned to carry
out an overall risk analysis of government guarantees and
loans in cooperation with the other guarantee and loan
agencies. The analysis includes both a credit perspective
and a liquidity perspective and is, until further notice,
reported to the Government in an annual report by 15 March
at the latest.
The Lending and Guarantees Ordinance (2011:211) contains
provisions associated with the Budget Act and regulates the
loan and guarantee operations of the Debt Office (apart from
the deposit guarantee scheme, the investor compensation
scheme and the “bank guarantee programme” which are
regulated separately and are not included in the Financial
and Risk Policy).
Decisions of the Debt Office
Strategic decisions are made by the Board and operational
decisions by the Director General or officials in accordance
with the rules of procedure of the Debt Office and the
relevant departments.
The Debt Office has to assess and evaluate the financial
risks that a guarantee commitment or lending entails for
central government and ensure that the matter is examined
and handled in a financially responsible way.
Objectives
The Debt Office also has to apply EU regulations saying that
state aid that distorts competition in the internal market is not
permitted. This means that state aid is not permitted in most
activities; the fee must instead be based on a market price
and be paid by the guarantee holder/borrower. But in some
areas state aid is permitted (for example support to
employment and to small and medium-sized enterprises).
The Government sets out the objectives of the guarantee and
loan operations in the Debt Office's appropriation directions
For government guarantees and loans the risk in each
commitment (or group of commitments) is estimated and a
price is set in the form of a fee/interest for the guarantee or
lending. If the fee/interest is not fully recovered from the
guarantee-holder/borrower, but is charged to an
appropriation, this constitutes a government subsidy. The
part of the fee/interest that corresponds to the expected loss
is to be transferred to a reserve, which is used to cover any


13
The Debt Office is to contribute to limiting central
government risk and safeguarding the position of central
government. This is to be done by evaluating financial
risks, setting fees, deciding terms and conditions and
collecting claims.
The Debt Office is to work actively for the efficient
performance of the guarantee and loan operations of
other agencies under the Government. The Debt Office
is to continue to develop the management of
government guarantees and lending in cooperation with
the other agencies concerned.
Principles for management of guarantees and lending
recourse claims and payment problems. The Debt
Office is to demand repayment in accordance with the
debtor's ability to pay, which means that a decision may
be made to forgive all or parts of a claim if there are
sufficient commercial reasons for doing so. In light of
the Debt Office’s decreasing portfolio of small recourse
claims, efforts should be made to achieve a balance
between the cost of management and the expected
recovery values.
The purpose of the principles is to specify/provide guidance
on how the Debt Office will issue guarantees and loans within
the frameworks set by the Budget Act, government
ordinances and other regulations in force and Riksdag and
Government decisions




Commercial pricing is used when state aid is not
permitted under EU rules. The Debt Office will work for
a design of guarantees and loans that allows the
expected losses to be estimated reliably. If the
guarantees or loans are designed in such a way that the
expected loss cannot be estimated reliably, these
commitments should not be handled within the
guarantee and loan model.
The Debt Office will use methods regarded as best
practice, mainly rating methodology where appropriate,
when evaluating risk in guarantee and credit operations.
The methodology will be validated continuously.
Validation will focus on the material risks in the
operations.
The principles of a commercial approach and equal
treatment are to provide guidance in the processing of
Reporting to the Board
The Guarantees and Lending Department reports annually or
when required to the Board on the Debt Office guarantee and
lending portfolio. Its reporting focuses on the larger and more
complex risks in the portfolio. In addition, the Board is
informed of the material changes in risk that the Debt Office
is obliged to report to the Ministry of Finance and of the
outcome of the internal risk monitoring process.
14
6 Credit risks
The purpose of rules and limits for credit risks is to set
requirements that must be complied with before transactions
are entered into in order to limit the credit risk and to manage
credit risks on outstanding transactions.
The Debt Office's internal regulations for initial counterparties
contains specific regulations for each CCP the Debt Office
affiliates to.
Calculation methods, see annex 3.
The use of central counterparty clearing requires no ISDA
and CSA for either the CCP or the initial counterparty.
Reporting to the Board
OTC derivative transactions
Breaches of limits and monitoring limits are reported.
Contractual requirements
6.1
The Management and payment of
the central government debt
process
6.1.1
Counterparty risks
ISDA agreements with a downgrading clause (“rating trigger”)
and Credit Support Annex (CSA) are required before OTC
derivative transactions may be entered into and remain in the
portfolio.
The Debt Office’s CSA agreements have to include a clause
on mutual threshold values as set out in the table shown
below. The agreements also have to contain a clause stating
that a downgrade of the counterparty will automatically result
in a reduction of the threshold value in accordance with the
table shown below.
Rating requirements
These requirements cover OTC derivative transactions and
short-term placements.
The counterparty’s long-term rating has to be at least A-.
Market requirement and maximum maturity
If the counterparty is downgraded under A-, new transactions
with the counterparty are only allowed after a decision by the
Director General in order to reduce the risk. On the basis of a
trade-off between cost and risk, outstanding transactions
may be held to maturity following a decision by the Director
General. The decision is reconsidered if further downgrades
occur during the period to maturity. These decisions are
reported back to the Board.
Transactions are conducted in well-developed markets and in
maturities with good liquidity. The maximum maturity is up to
and including 20 years.
Limits
The limits for OTC derivative transactions are the threshold
values in the CSA agreements. The following threshold
values apply.
For counterparties in short-term placements a short-term
credit rating can be used if the counterparty has no long-term
credit rating. In that case, the short-term credit rating is
translated into the equivalent long-term credit rating. As the
short-term and long-term rating scales cannot be translated
one to one, the short-term credit rating is translated to the
lowest equivalent long-term rating. The limits are then to
correspond to the limits set for the translated long-term credit
rating.
Table 2. Threshold values
Rating
Central counterparty clearing, OTC instruments
Only central counterparties (CCPs) authorised under
European Parliament and Council Regulation 648/2012 may
be engaged for central counterparty clearing.
SEK
million
EUR or USD million
AAA
500
50
AA+
250
25
AA
200
20
AA-
130
13
A+
100
10
A
80
8
A-
50
5
BBB+ or lower
0
0
Temporary deviations from the thresholds are permitted for
practical reasons.
No rating requirements and no limits are set for CCPs.
15
Short-term placements
Limit
SEK 50 billion per country.
Maximum maturity
6.1.2
The maximum maturity is up to and including 12 months.
To manage settlement risk the Debt Office will endeavour,
where possible, to achieve settlement on the principles of
Delivery Versus Payment (DVP) or Payment Versus
Payment (PVP).
Table 3. Limits, short-term placements
Rating
AAA
AA+ to AA(inclusive)
A+ & A
A-
Maximum
exposure per
counterparty
according to
base limit*
Maximum
exposure per
counterparty
according to
extended limit**
Maximum
maturity
SEK 8 billion
SEK 10 billion
Depending
on the
instrument
SEK 5.5 billion
SEK 7 billion
Depending
on the
instrument
SEK 3 billion
SEK 4 billion
Depending
on the
instrument
SEK 1.5 billion
SEK 2 billion
Five banking
days
Settlement risk
6.1.3
Country risk
Short-term placements and OTC derivatives may only be
entered into with counterparties from a country with a longterm sovereign rating of at least A-. When approving new
placement and/or OTC-derivative counterparties, account is
also taken of the counterparty's country of domicile, for
example as regards international sanctions in which Sweden
is participating.
6.2
* Applies in normal circumstances.
** Applies for a limited period of time. Decision on use made by the
Director-General.
Central government liquidity
management process
Extra scope for overnight (“O/N”) placements
Contractual requirements

The framework agreements have to include principles and
measures to limit account balances O/N in accounts under
the treasury single account in the Riksbank and in currency
accounts.


The aggregate extra volume used for O/N placements
must not exceed SEK 25 billion.
Counterparties that can be approved for extra O/N
volume are RIX participants, provided that they fulfil the
conditions set for short-term placement counterparties.
The extra volume for O/N placements is a maximum of
SEK 25 billion per counterparty (including the short-term
placement limit) for the five largest banks in the Swedish
market and a maximum of SEK 6 billion per
counterparty (including the short-term placement limit)
for other RIX participants.
The framework agreements have to contain a right for the
Debt Office to terminate the agreement if the bank is
downgraded (“downgrading clause”), suspends payments,
applies for a company reorganisation, enters liquidation or is
declared bankrupt.
Rating requirement
The long-term rating of the framework agreement bank has
to be at least A- when the agreement is entered into.
Reporting to the Board

The Board is kept informed of the counterparties that
have been granted an O/N extra limit and the size of the
limit.
Maximum maturity
The maximum maturity is O/N.
Extended limit for placements in other states
Monitoring limits
The country’s rating has to be AAA.
The Debt Office sets the monitoring limits for account
balances.
Country requirements
Account balances during the day
Placements under the extended limit can be made in
countries in the euro area and the UK, Denmark and Norway.
To keep account balances during the day to a minimum
several settlements are carried out during the day between
each framework agreement bank and the Debt Office. The
risk at each settlement is kept to a minimum by netting
incoming and outgoing payments.
Rating requirements
Maximum maturity
The maximum maturity under the extended limit is up to 4
months.
16
6.3
Maximum withdrawal amounts
A government agency has to decide the maximum
withdrawal amount for bank accounts that are linked to the
Debt Office's top accounts in the framework agreement
banks and therefore to the Government's central account in
the Riksbank.
Exceptions
Swedish government agencies, the AP Funds and the
Riksbank are regarded as risk-free counterparties and
therefore not subject to limits.
There are no rating requirements for dealers in lottery bonds
within a subscription limit of at most SEK 150 million.
However, an assessment of dealers has to be made.
17
7 Operational risk
General framework

The Debt Office works with operational risk on the basis of
the ISO 27000 standard and the Internal Control Ordinance
(SFS 2007:603).

Principles
A follow-up of the risk analyses is carried out and a new
risk assessment is made, taking account of the effects
of measures taken.
Departments report incidents that occur in the
operations. The cause of the event is followed up and
relevant measures are implemented.
The following principles apply to the management of
operational risk.
Reporting to the Board

The Board is informed of the current risk status. The Board is
also informed of incidents that have had a major impact on
operations, along with the measures taken.


The Debt Office carries out annual risk analyses of all
departments in connection with planning activities.
The selected risk level is documented.
Measures that reduce identified risks are planned and
given priority.
18
Annex 1 – Risk map
The risk map shows the main types of risks identified within the framework of the Debt Office’s operations.
19
Annex 2 – Definitions
In these definitions, the term loss means a negative impact on finances, reputation and/or business.
Business risk
Business risk is the risk of a loss on account of factors in the
external business environment, for example lower demand
for products or services.
Interest rate risk
Concentration risk
Liquidity risk
Concentration risk is the risk of a greater loss on account of a
concentration on individual and/or correlated risk factors.
Liquidity risk is the risk of not being able to meet payment
obligations as they fall due without a substantial increase in
the cost of obtaining means of payment. Liquidity risk
includes financing risk, refinancing risk and market liquidity
risk.
Interest rate risk is the risk that the value of assets and
liabilities will change in an unfavourable way when levels of
interest rates change.
Country risk
Country risk is a group of risks associated with doing
business with a counterparty in a particular country. These
risks mainly refer to the ability of a country to meet its
external obligations, expectations about the general
development of the economy in the country, political stability
and the legislative environment of the country.
Market liquidity risk.
Market liquidity risk is the risk that it will not be possible to
realise or cover a position at the current market price since
the market is not deep enough or is not functioning on
account of some disturbance.
Credit risk
Market risk
Credit risk is the risk that a loss will be incurred because a
counterparty will not fulfil its obligations and the risk that a
loss of value will arise on account of impaired credit quality.
Credit risk includes settlement risk, default risk, country risk
and systemic risk.
Market risk is the risk of a loss because of unfavourable price
movements in the market. Market risk includes interest rate
risk, currency risk and inflation risk.
Operational risk
Currency risk
Currency risk is the risk that the value of assets and liabilities
will change in an unfavorable way when currency exchange
rates change.
Operational risk is the risk of loss on account of inadequate
or failed internal processes or of human error, faulty systems
or external events. This risk can have an internal or external
cause. Security-related risks are part of operational risks.
Default risk
Refinancing risk
Default risk is the risk that the counterparty in a transaction
will not fulfil its obligations. Settlement risk is a form of default
risk.
Refinancing risk is the risk that it will be difficult and/or
expensive to replace maturing loans.
Settlement risk
External risk
External risk is the risk of a loss on account of changes
outside the Debt Office, for example changes in the
(geo-)political or global (economic) situation.
Settlement risk is the risk that one party will not fulfil its
undertakings at the time of settlement, i.e. will not deliver
currency or securities after the other party has already
fulfilled its undertakings.
Financing risk
Strategic risk
Financing risk is the risk that it will be difficult and/or
expensive to raise new financing.
Strategic risk is the risk of a loss because of misdirected
strategic decisions and/or because strategic decisions do not
have the intended effect.
Inflation risk
Inflation risk is the risk of a loss in nominal terms because
inflation is higher than expected.
20
Systemic risk
Systemic risk means the risk that problems affecting one or
more participants spread to other parties and cause general
problems in the financial system.
21
Annex 3 – Certain calculation methods
Maturity of the central government debt
financial risks. But there are still possibilities of making an inhouse interpretation and adaptation of the method.
The Government has decided that the maturity of the central
government debt is to be measured as duration. Its duration
is expressed as Macaulay duration.
The main steps in the method are:
1. Calculate the variation for each factor’s result on a daily
basis.
For an individual instrument Macaulay duration describes the
average remaining time to maturity by weighting the time to
each cash flow (coupon and principal) by the cash flow’s
share of the present value. For a portfolio, for example a type
of debt, the Macaulay duration is calculated as the present
value-weighted sum of the individual instruments' Macaulay
duration.
2. Weight them together exponentially to get a kind of
average. Exponential weighting means that different weights
can be attached to events that are close in time in relation to
earlier events. The Debt Office uses a weighting factor
(decay) of 98%.
Macaulay duration can be calculated in various ways. The
Debt Office has chosen to calculate Macaulay duration on
the basis of an approximation of modified duration. Modified
duration can be converted to Macaulay duration using the
following formula:
3. Calculate the covariance between the factors
(correlations).
4. Allocate the portfolio’s cash flows to the different maturity
factors.
𝐷𝑢𝑟Macaulay = 𝐷𝑢𝑟Modifierad (1 + 𝑟YTM )
5. Calculate the total VaR value for the portfolio taking
account of the correlations calculated in step 4 and a
confidence interval. The Debt Office uses a 95% unilateral
confidence interval.
For instruments with complex cash flow structures, the yield
may be undefined, and thus modified duration cannot be
converted to Macaulay duration. In those cases, Macaulay
duration is replaced by modified duration.
One interpretation of the VaR value is that there is only a 5
per cent risk of incurring a loss that is greater than the VaR
value calculated.
Modified duration for an individual instrument is calculated on
the basis of dollar duration. Dollar duration shows how the
market value for an instrument is affected by a small interest
rate change. Instead of calculating the dollar duration
analytically, the measure is approximated.
The Debt Office monitors continuously (back-tests) how this
matches up with reality and has presented this in recent
years’ annual reports.
Credit risks
Calculation of interest rate risk limits in the continuous
position taking
The calculation of exposures in Over the Counter (OTC)
derivative transactions is based on the market value and
account is taken of netting in accordance with ISDA
agreements.
The limit set for interest rate risk in the continuous position
taking is expressed in per cent. This is because the
mandates in continuous position taking have different
portfolio sizes and limits are therefore set as a maximum
ratio of interest rate risk measured in kronor to the size of the
portfolio, i.e. limit is expressed as a percentage of portfolio
size. Assume, for example:
Value-at-Risk (VaR)
VaR is a method of calculating risks in a portfolio. This is
done by taking account of different risk factors and how they
affect one another and the portfolio. The risk factors currently
used by the Debt Office are currency and 18 maturity
intervals. Since the Debt Office uses eight currencies in
active management, this makes a total of 152 (8 x 19) factors
to take into account.
The method used by the Debt Office was developed by JP
Morgan and has become the industry standard for measuring
22

a portfolio size of SEK 200 billion

a limit of ± 0.9 per cent the size of the portfolio, i.e.
the limit is SEK 1.8 billion kronor

an interest rate position with a size of SEK 1 billion
in dollar duration.
The ratio will then be SEK 1 billion /SEK 200 billion = 0.5 per
cent. This is deducted from the limit. Then 0.4 of the limit (0.9
- 0.5) is left. This corresponds to 0.4 per cent * SEK 200
billion = SEK 0.8 billion.
23
Annex 4 – References
Supporting material for the Financial and Risk Policy
Decision on a clarification in section 2.2 regarding deviation
intervals for the maturity of the nominal krona debt and
inflation-linked krona debt. Board decision, 18 February
2015.
The supporting material sets out analyses, discussions and
reasons for amendments to the Financial and Risk Policy.
The following is a list of the supporting material as of 2006
(i.e. the year when the first Financial and Risk Policy was
adopted) with a description of the main content of the
documents.
Supporting material for 2015
Main content: Reduction of the exposure of the central
government debt in foreign currency and new currency
benchmark. Also several minor changes. (Supporting
material for the adoption of the Debt Office's Financial and
Risk Policy 2015, reg. no 2014/1400). Board decision, 11
December 2014.
Amendment in 2017
Decision to change the currency benchmark for 2017. Board
decision, 17 February 2017.
Decision regarding adjustment in section 2.3 Exchanges
between Swedish kronor and foreign currency due to the
introduction of the multi currency cash pool structure. The
adjustment refers to how the exchange path is determined.
Board decision, 17 February 2017.
Amendment in 2014
Supporting material for 2017
Decision on supplementary text in section 2.2.3 Foreign
currency debt that, for practical reasons, minor exposures to
foreign currencies and interest rates not included in the
benchmark are permitted. Board decision, 15 September
2014.
Main content: Introduction of the central government multi
currency cash pool structure and the alternation of the
currency benchmark for 2017. Also a number of minor
changes. (Supporting material for the adoption of the Debt
Office's Financial and Risk Policy 2017, reg. no 2016/1069).
Board decision, 13 December 2016.
Decision on supplementary text in section 7.1.2 OTC
derivative transactions, clarifying that temporary overruns of
the thresholds are allowed. The decision also includes the
removal of footnote 5 in the same section. Board decision, 19
May 2014.
Amendment in 2016
Supporting material for 2014
Decision to remove the chapter “Financial stability and
consumer protection process” from the Financial and Risk
Policy. Board decision, 19 February 2016.
Main content: Amendments to principles for management of
the Deposit Guarantee Fund. Mainly extended maturity of
investments and repos.(Supporting material for adoption of
the Debt Office Financial and Risk Policy 2014, reg. no
2013/268). Board decision, 11 December 2013.
Decision to amend the risk map and associated definitions.
Board decision, 23 May 2016.
Amendment in 2013
Supporting material for 2016
Decision on regulations for financial instruments centrally
cleared at Nasdaq OMX (Amendment to Financial and Risk
Policy – internal regulations for financial instruments centrally
cleared at Nasdaq OMX, reg. no 2013/1064.) Board decision,
22 May 2013.
Main content: Amendment of the currency benchmark for
2016 and clarification regarding the handling of outstanding
transactions with a counterparty that is downgraded below
A-. Also a number of minor changes. (Supporting material for
the adoption of the Debt Office's Financial and Risk Policy
2016, reg. no 2015/959). Board decision, 14 December 2015.
Supporting material for 2013
Main content: A number of changes in the sections on the
processes: Payment and management of central government
debt, Central government liquidity management, Guarantees
and credits (including increased reporting requirements) and
Financial stability and consumer protection. In the section on
credit risks: Review of O/N limit, settlement risk, participation
in issues etc. and country risk. (Supporting material for the
Amendment in 2015
Decision to amend the maturity interval for the nominal krona
debt as a result of substantial falls in market interest rates.
Government decision of 12 March 2015, following a proposal
from the Board of the Debt Office dated 18 February 2015.
24
adoption of the Debt Office's Financial and Risk Policy 2013,
reg. no 2012/1730.) Board decision, 12 December 2012.
Amendments in 2008
Temporary alteration of the mandate for currency exchanges.
(Proposal for temporary alteration to the mandate for
currency exchanges, reg. no 2008/621, Board decision, 16
April 2008.)
Amendment in 2012
Decision on deviation interval for the nominal krona debt and
the inflation linked krona debt (Amendment to Financial and
Risk Policy 2012, reg. no 2012/1045). Board decision, 23
May 2012.
Introduction of composition benchmarking for the foreign
currency debt. (Reg. no 2008/1302, Board decision, 28
August 2008.)
Supporting material for 2012
Alterations to exchanges between Swedish kronor and
foreign currency. (Reg. no 2008/1636, Board decision, 21
October 2008.)
Main content: Use of short-term rating, clarification regarding
exception for overruns of limits, discussion of the term
"material", etc. (see supporting material for adoption of the
Debt Office's Financial and Risk Policy 2012, reg. no
2011/1963.) Board decision, 15 December 2011.
Supporting material for 2008
Alteration of limit structure for short-term placements
(Proposed change in the Debt Office’s Financial and Risk
Policy 2011, reg. no 2011/1696). Board decision, 14
September 2011.
Main content: The internal central government bank and the
retail market were included in the Financial and Risk Policy,
discussion of steering the share of inflation-linked debt, the
maturity of the inflation-linked debt. (Supporting material for
decision to adopt the Financial and Risk Policy 2008, reg. no
2007/1869. Board decision, 6 December 2007.)
Supporting material for 2011
Amendment in 2007
Main content: In the Debt management and payments
process an alteration was made to the interest rate refixing
period of the nominal krona debt, the maturity benchmark for
the inflation-linked debt was altered, the wording of decisions
on position taking was altered and the VaR mandate was
reduced. Some alterations were also made in the
Guarantees and credit process (Reg. no 2010/1831, Board
decision, 15 December 2010).
Extended limit for short-term placements with other states.
(Proposed amendment to the Debt Office's Financial and
Risk Policy 2007, reg. no 2007/1655, Board decision, 17
October 2007.)
Amendment in 2011
Supporting material for 2007
Main content: Distribution of the maturity of the debt,
methods of calculating shares, steering and reporting of the
inflation-linked share, position taking by the Debt Office,
principles for the guarantees and credits branch of
operations, the regulatory framework for counterparty risks.
(Supporting material for adoption of the Financial and Risk
Policy 2007, reg. no 2006/02015. Board decision, 7
December 2006.)
Supporting material for 2010
Main content: “Support to credit institutions” was included in
the policy, questions relating to investment operations for the
deposit guarantee scheme were included in the section on
Guarantees and credits (Reg. no. 2009/1565, Board
decision, 16 December 2009).
Amendment in 2006
Amendment in 2009
Alteration of the benchmark for the nominal krona debt
interest rate refixing period (Reg. no 2009/686, Board
decision, 14 April 2009)
Extension of temporary limits on the overnight market.
(Proposed amendment of the Debt Office's Financial and
Risk Policy 2006, reg. no 2006/01158, Board decision, 16
June 2006.)
Supporting material for 2009
Supporting material for 2006
Main content: Alteration of the currency distribution in the
currency benchmark, delegation of previous board decisions
in external active management, amendment of and
supplement to principles for management of guarantees and
credits and the principles for central government liquidity
management.
Main content: Risk management at the Debt Office, principles
for debt and market maintenance, distribution of the maturity
of the nominal debt, currency composition in the foreign
currency debt, share of inflation-linked debt, calculation and
reporting of the interest rate refixing period of the nominal
krona debt, temporary credit limits on the overnight loan
market. (Supporting material for adoption of the Financial and
Risk Policy 2006, reg. no 2005/02408. Board decision, 08
December 2005.)
25
Board decisions before 2006 included in the Financial and
Risk Policy - 2006
issues. These older decisions were included in the first
Financial and Risk Policy.
Before the Financial and Risk Policy was introduced (i.e.
before 2006), the Board took separate decisions on particular
26
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