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Financial Fragility, Growth Strategies and Banking Failures: The Major Norwegian Banks and the Banking Crisis, 1987-92

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  • S. Knutsen
  • E. Lie

Abstract

Norwegian financial institutions experienced a severe banking crisis in the late 1980s and early 1990s. This article examines the development of the two largest Norwegian banks before and during the crisis within a financial fragility approach. Deregulation of the markets for credits and lax monetary policy triggered a rapid growth of lending from Norwegian banks in the mid-1980s. Systemic risk was dramatically increased by changes in mentality and strategies in the largest banks. During the banks' expansion, a fragile debt burden was built up and systems of steering and control were given a lower priority. The mechanisms in the process of growths and failure of the two major Norwegian banks indicate that sudden institutional change triggered by the liberalisation of financial markets as well as organisational factors should be emphasised when explaining the crisis.

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  • S. Knutsen & E. Lie, 2002. "Financial Fragility, Growth Strategies and Banking Failures: The Major Norwegian Banks and the Banking Crisis, 1987-92," Business History, Taylor & Francis Journals, vol. 44(2), pages 88-111.
    • Handle: RePEc:taf:bushst:v:44:y:2002:i:2:p:88-111
    DOI: 10.1080/713999267
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    Cited by:

    1. Avner Offer, 2013. "Narrow Banking, Real Estate, and Financial Stability in the UK, c.1870-2010," Oxford Economic and Social History Working Papers _116, University of Oxford, Department of Economics.
    2. Richard S.Grossman, 2016. "Banking Crises," Wesleyan Economics Working Papers 2016-001, Wesleyan University, Department of Economics.
    3. Dervis Kirikkaleli & Rui Alexandre Castanho & Sema Yilmaz Genc & Modupe Oluyemisi Oyebanji & Gualter Couto, 2022. "The Asymmetric and Long-Run Effect of Financial Stability on Environmental Degradation in Norway," Sustainability, MDPI, vol. 14(16), pages 1-15, August.
    4. Waldenström, Daniel, 2004. "Is Swedish Research in Economic History Internationally Integrated?," SSE/EFI Working Paper Series in Economics and Finance 566, Stockholm School of Economics, revised 12 Aug 2005.
    5. 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.
    6. Eric Tymoigne, 2010. "Detecting Ponzi Finance: An Evolutionary Approach to the Measure of Financial Fragility," Economics Working Paper Archive wp_605, Levy Economics Institute.
    7. Avner Offer, 2013. "Narrow banking, real estate, and financial stability in the UK, c.1870-2010," Oxford University Economic and Social History Series _116, Economics Group, Nuffield College, University of Oxford.
    8. Eric Tymoigne, 2014. "Measuring macroprudential risk through financial fragility: a Minskian approach," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 36(4), pages 719-744.
    9. Eric Tymigne, 2011. "Financial stability, regulatory buffers and economic growth after the Great Recession: some regulatory implications," Chapters, in: Charles J. Whalen (ed.), Financial Instability and Economic Security after the Great Recession, chapter 6, pages 114-140, Edward Elgar Publishing.
    10. Grytten, Ola Honningdal, 2020. "The Wealth of a Nation: Norways Road to Prosperity," Discussion Paper Series in Economics 17/2020, Norwegian School of Economics, Department of Economics.

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