Did Sweden in its 1990 crisis nationalise the banks?

Media is rife with comparisons of today’s crisis with Sweden’s crisis. (However, I think entire Nordic crisis of 1990 is a better parallel). There is a consensus that like Sweden US should also nationalise its banks.

Anders Aslund of IIE turns this Sweden crisis parallel on its head. He says Sweden did not nationalise the banking system as we believe (Norway did). So, we are looking at the wrong country for a solution. Sweden example serves well for buying bad assets but not for nationalisation of banks. Even then, bad banks were set by private banks and not any govt authority.

I also checked a comprehensive paper (see Chapter 3 in paper or page 94 of the entire report) prepared on Nordic Crisis by Norges Bank. It says only 2 banks were nationalised in Sweden – Gota Bank (which Aslund also mentions) and Nordbanken (which was majorly owned by Govt anyways). Norway nationalised three and Finland two.

So it is Norway and not really Sweden we should be looking at. Even in Norway only 3 were nationalised and in US case we are looking at possibly 1000s as President Obama himself noted.

I came across another excellent short note from St Louis Fed on resolving the crisis via Nordic way. It says three lessons:

First, build a bipartisan political consensus to support the actions needed to maintain confidence in the banking system. This includes establishing a new crisis resolution agency to handle both communication with the public and bank restructuring. If successful, such an agency can reduce conflicts of interest or “turf fights” among existing agencies while providing capital and liquidity to banks, even if another agency (such as the central bank) provides funding.

Second, seek private solutions, including mergers and acquisitions; avoid liquidations when possible.

Third, be very transparent regarding support actions. In the Nordic case, public confidence was sustained and bank runs avoided (absent government  deposit insurance) through a highly visible public government guarantee for the obligations of banks, including both deposits and borrowings.

US (and others) have only tried to follow the second lesson. First and Third have been ignored and there is absolutely no clarity with any policy response. I had pointed earlier as well that biggest lesson from Sweden’s crisis was its transparency and communications. Even now, there is much confusion despite both Treasury and Fed trying their best to be transparent. For instance, Treasury has set a website for all its financial stability programs and Fed for its various Programs. They hardly serve any purpose with former having just links to various programs and latter too much information for anyone to digest. What is needed is short primers to tell the public of its intentions.

Anyways, another idea on its head. Hunt for solutions from Norway now.

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One Response to “Did Sweden in its 1990 crisis nationalise the banks?”

  1. Where did Obama’s Bank Tax/Fee plan come from…from Sweden « Mostly Economics Says:

    […] again leads from the front. It had valauable lessons to solve a financial crisis, its central bank keeps coming out with new ideas, fiscal consolidation and now this proposal to […]

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