Solvency free

The Dutch Central Bank treats loans guaranteed by WSW as solvency-free (‘0% risk weighting’). This means they are equivalent to loans guaranteed by the central government and municipalities. As well as in the Netherlands, this treatment also applies in Belgium, Germany, the United Kingdom, France, Ireland, Luxembourg and Sweden. The European Central Bank accepts WSW-backed loans as collateral, while the central banks of Luxembourg and Ireland also allow banks to use these loans as collateral when, for example, issuing mortgage bonds (Deckungsfähigkeit). WSW-guaranteed loans are standardized loans. WSW is seeking to extend the 0% risk weighting assigned to the loans it guarantees and their acceptability by central banks as collateral throughout the EMU area as this will increase the marketability of these loans.

The risk weighting of 0% is important for financial institutions as it gives them a financial benefit, which in turn indirectly helps tenants in the social housing sector. It is easy to calculate the benefit of the 0% risk weighting for these loans, which can amount to up to 10% of the interest rate payable. If, for example, the interest payable on a WSW-guaranteed loan is 4%, the rate would increase to 4.34% (= 100/92 x 4/100) if the loan no longer attracted a risk weighting of 0% because banks would then have to hold capital amounting to 8% of the loan. Given the high amounts lent to housing associations and the high share of their operating costs that is attributable to interest expense, the fact that banks do not have to hold capital in respect of these loans is very important for housing associations and, therefore, tenants. The cost benefit of the 0% risk weighting is clearly reflected in the interest rates payable by housing associations.

Balance sheet management instrument
Banks can use WSW paper to manage their balance sheets. Balance sheet positions can change from one moment to the next, and so it is important for banks to be able to trade paper quickly. This is made much easier if the paper is highly marketable, which certainly applies in the case of WSW paper.