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The Highs and the Lows : Bank failures in Sweden through inflation and deflation, 1914-1926

Kenny, Seán LU ; Ögren, Anders LU and Zhao, Liang LU (2023) In European Review of Economic History 27(2). p.223-249
Abstract
This paper revisits the Swedish banking crisis (1919–1926) that materialized as post-war deflation replaced wartime inflation (1914–1918). Inspired by Fisher’s “debt deflation theory,” we employ survival analysis to “predict” which banks would fail, given certain exante bank characteristics. Our tests support the theory; maturity structures mattered most in a regime of falling prices, with vulnerable shorter-term customer loans and bank liabilities representing the most consistent cause of bank distress in the crisis. Similarly, stronger growth in (1) leverage, (2) weaker collateral loans, and (3) foreign borrowing during the boom were all associated with bank failure.
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author
; and
organization
publishing date
type
Contribution to journal
publication status
published
subject
keywords
Banking Crisis, Sweden, Debt Deflation, maturity mismatch, survival analysis, early warning indicators
in
European Review of Economic History
volume
27
issue
2
pages
27 pages
publisher
Oxford University Press
external identifiers
  • scopus:85166180157
ISSN
1474-0044
DOI
10.1093/ereh/head001
language
English
LU publication?
yes
id
332ecf86-8c0b-45eb-b68c-de417332ad57
date added to LUP
2023-03-08 08:32:59
date last changed
2023-11-06 11:09:44
@article{332ecf86-8c0b-45eb-b68c-de417332ad57,
  abstract     = {{This paper revisits the Swedish banking crisis (1919–1926) that materialized as post-war deflation replaced wartime inflation (1914–1918). Inspired by Fisher’s “debt deflation theory,” we employ survival analysis to “predict” which banks would fail, given certain exante bank characteristics. Our tests support the theory; maturity structures mattered most in a regime of falling prices, with vulnerable shorter-term customer loans and bank liabilities representing the most consistent cause of bank distress in the crisis. Similarly, stronger growth in (1) leverage, (2) weaker collateral loans, and (3) foreign borrowing during the boom were all associated with bank failure.}},
  author       = {{Kenny, Seán and Ögren, Anders and Zhao, Liang}},
  issn         = {{1474-0044}},
  keywords     = {{Banking Crisis; Sweden; Debt Deflation; maturity mismatch; survival analysis; early warning indicators}},
  language     = {{eng}},
  month        = {{03}},
  number       = {{2}},
  pages        = {{223--249}},
  publisher    = {{Oxford University Press}},
  series       = {{European Review of Economic History}},
  title        = {{The Highs and the Lows : Bank failures in Sweden  through inflation and deflation, 1914-1926}},
  url          = {{http://dx.doi.org/10.1093/ereh/head001}},
  doi          = {{10.1093/ereh/head001}},
  volume       = {{27}},
  year         = {{2023}},
}