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Banking System Bailout-Scandinavian Style


  • B. Espen Eckbo


During the Scandinavian banking crisis in the early 1990s, Norway and Sweden chose somewhat different routes to crisis resolution, though both involved government intervention and both proved effective. The Norwegian government injected a hybrid debt-equity form of capital into the largest commercial bank, though only after first extinguishing old equity claims. The Swedish government issued a system-wide debt guarantee and allowed shareholders to maintain their equity stakes, provided they also contributed new equity capital to the banks. In the (single) case where equityholders refused to participate, the government took over the bank and divided it into a "good" and "bad" part, with the latter holding the non-performing loans. Copyright Copyright (c) 2010 Morgan Stanley.

Suggested Citation

  • B. Espen Eckbo, 2010. "Banking System Bailout-Scandinavian Style," Journal of Applied Corporate Finance, Morgan Stanley, vol. 22(3), pages 85-93.
  • Handle: RePEc:bla:jacrfn:v:22:y:2010:i:3:p:85-93

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    References listed on IDEAS

    1. Espen Eckbo, B. & Thorburn, S. Karin, 2008. "Automatic bankruptcy auctions and fire-sales," Journal of Financial Economics, Elsevier, vol. 89(3), pages 404-422, September.
    2. Oliver Hart & Luigi Zingales, 2011. "A New Capital Regulation for Large Financial Institutions," American Law and Economics Review, Oxford University Press, vol. 13(2), pages 453-490.
    3. B. Espen Eckbo & Karin S. Thorburn, 2009. "Bankruptcy as an Auction Process: Lessons from Sweden," Journal of Applied Corporate Finance, Morgan Stanley, vol. 21(3), pages 38-52.
    4. George Pennacchi, 2010. "A structural model of contingent bank capital," Working Paper 1004, Federal Reserve Bank of Cleveland.
    5. Kashyap, Anil K. & Rajan, Raghuram G. & Stein, Jeremy C., 2008. "Rethinking capital regulation," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 431-471.
    6. Allen, Franklin & Gale, Douglas, 1999. "Bubbles, Crises, and Policy," Oxford Review of Economic Policy, Oxford University Press, vol. 15(3), pages 9-18, Autumn.
    7. Lars Jonung, 2009. "The Swedish model for resolving the banking crisis of 1991 - 93. Seven reasons why it was successful," European Economy - Economic Papers 2008 - 2015 360, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
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    Cited by:

    1. Michael Diemer & Uwe Vollmer, 2015. "What makes banking crisis resolution difficult? Lessons from Japan and the Nordic Countries," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 5(2), pages 251-277, December.

    More about this item

    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages


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