by Trond Ove
Mon Oct 6th, 2008 at 01:10:33 PM EST
I have been a bit mystified by why everyone seems to be celebrating the swedish bank rescue plan of the 90's, since I seemed to distinctively remember it being criticised in Norway for being wasteful and neo-liberal.
So I finally got around to searching for some comparison of the banking crisis in Norway and Sweden, and found this interesting paper prepared by the Norwegian National Bank: Bent Vale, The Norwegian Banking Crisis, Norges Bank Skriftserie 33, 2006
The differences in approaches between the handling in Norway and Sweden wasn't as big as I thought however. Norway was the "pioneer", and was much more agressive than Sweden and Finland in nationalising failing banks, but they all more or less followed the same pattern.
What distinguishes the Norwegian crisis and its resolution from other banking crises -in particular the crises in the other Nordic countries?
- The Norwegian crisis started before the crises in Finland and Sweden and had its peak one year prior to the other two.
- The stock of non-performing loans as a percentage of GDP in Swedish and Norwegian banks was about the same, but banking problems in Norway started to emerge at some smaller and medium-sized banks about two years before the crisis peaked and was deemed systemic.
- The two bank-owned guarantee funds [in Norway] handled most of the failures in smaller banks by capital injections and guarantees.
- Unlike deposit insurance funds in the other Nordic countries, and most other European countries, these funds had -and still have -a fairly wide mandate.
- Once the crisis reached systemic proportions the government took swift action, and a separate institution for crisis handling was set up.
- Government support was contingent on strict requirements being met, e.g. existing shareholders accepting a write-down to cover losses to the extent possible.
- The requirements were stipulated as general guidelines, and there was no attempt at micro-management of the banks'operations.
- A separate entity to manage and recover non-performing loans -an asset management company or a "bad bank"-was not set up. This was different from the crisis resolution in many other countries (Sweden, Finland, the S&L crisis in the US, and several Asian countries) where government funded asset management companies were used.
- No blanket guarantee for banks' liabilities was issued by the Norwegian authorities.
- The gross fiscal cost of crisis resolution was 2 per cent of GDP in Norway. This was smaller than in both Sweden and Finland where comparable numbers were 3.6 per cent and 9.0 per cent respectively.
- After the crisis, GDP and bank solvency recovered rapidly.
- The Norwegian government maintained a portion of its bank ownership long after the crisis was resolved. Prior to the crisis, these banks had all been privately owned.
According to a paper by Peter Englund (The Swedish Banking Crisis: Roots and Consequences, Oxford Review of Economic Policy, 1999) the main difference in Sweden seems to be that the government bought bad debts from stricken banks and managed them in a state owned company, Securum, which sold off all its asset as soon as GDP stopped falling (ie. when the assets could only go up in value). This company alone was responsible for half of the total loss to the tax payers in Sweden. (2.1 percent of 1996 GDP according to Englund).
Another small difference is that while Norwegian stock holders got nothing from the state during the nationalisation, the swedish owners got 3 billion swedish kroner. (Approximately 5 percent of the total bailout cost.)