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The Swedish model for resolving the banking crisis of 1991-93. Seven reasons why it was successful

Jonung, Lars LU (2009) In European Economy - Economic Papers
Abstract
This study presents the main features of the Swedish approach for resolving the banking crisis of 1991-93 by condensing them into seven policy lessons. These concern (1) the importance of political unity behind the resolution policy, (2) a government blanket guarantee of the financial obligations of the banking system, (3) swift policy action where acting early was more important than acting in exactly the right manner, (4) an adequate legal and institutional framework for the resolution procedures including open-ended public funding, (5) full disclosure of information by the parties involved, (6) a differentiated resolution policy minimizing moral hazard by forcing private sector participants to absorb losses before government financial... (More)
This study presents the main features of the Swedish approach for resolving the banking crisis of 1991-93 by condensing them into seven policy lessons. These concern (1) the importance of political unity behind the resolution policy, (2) a government blanket guarantee of the financial obligations of the banking system, (3) swift policy action where acting early was more important than acting in exactly the right manner, (4) an adequate legal and institutional framework for the resolution procedures including open-ended public funding, (5) full disclosure of information by the parties involved, (6) a differentiated resolution policy minimizing moral hazard by forcing private sector participants to absorb losses before government financial intervention, and (7) the proper design of macroeconomic policies to simultaneously end the crisis in both the real economy and the financial sector.
The exportability of the Swedish model of the 1990s to countries suffering from financial turmoil today requires a detailed knowledge of the institutions, legislation and political conditions in the country involved. The application of these lessons outside Sweden is not a simple task, given the major differences between the initial conditions of the Swedish crisis of the early 1990s and the present global financial crisis. Nevertheless, the Swedish experience of bank resolution does provide important lessons for today. (Less)
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author
publishing date
type
Book/Report
publication status
published
subject
in
European Economy - Economic Papers
pages
29 pages
publisher
European Commission
report number
360
ISSN
1725-3187
ISBN
978-92-79-09700-3
language
English
LU publication?
no
id
d81bb6bd-dc62-435c-92b3-5c8936e89d16
alternative location
http://ec.europa.eu/economy_finance/publications/publication_summary14130_en.htm
date added to LUP
2020-01-30 10:31:46
date last changed
2021-03-22 21:16:27
@techreport{d81bb6bd-dc62-435c-92b3-5c8936e89d16,
  abstract     = {{This study presents the main features of the Swedish approach for resolving the banking crisis of 1991-93 by condensing them into seven policy lessons. These concern (1) the importance of political unity behind the resolution policy, (2) a government blanket guarantee of the financial obligations of the banking system, (3) swift policy action where acting early was more important than acting in exactly the right manner, (4) an adequate legal and institutional framework for the resolution procedures including open-ended public funding, (5) full disclosure of information by the parties involved, (6) a differentiated resolution policy minimizing moral hazard by forcing private sector participants to absorb losses before government financial intervention, and (7) the proper design of macroeconomic policies to simultaneously end the crisis in both the real economy and the financial sector.<br/>The exportability of the Swedish model of the 1990s to countries suffering from financial turmoil today requires a detailed knowledge of the institutions, legislation and political conditions in the country involved. The application of these lessons outside Sweden is not a simple task, given the major differences between the initial conditions of the Swedish crisis of the early 1990s and the present global financial crisis. Nevertheless, the Swedish experience of bank resolution does provide important lessons for today.}},
  author       = {{Jonung, Lars}},
  institution  = {{European Commission}},
  isbn         = {{978-92-79-09700-3}},
  issn         = {{1725-3187}},
  language     = {{eng}},
  number       = {{360}},
  series       = {{European Economy - Economic Papers}},
  title        = {{The Swedish model for resolving the banking crisis of 1991-93. Seven reasons why it was successful}},
  url          = {{https://lup.lub.lu.se/search/files/75681007/publication14098_en.pdf}},
  year         = {{2009}},
}