The Great Financial Crisis in Finland and Sweden

The Great Financial Crisis in Finland and Sweden

The Nordic Experience of Financial Liberalization

Edited by Lars Jonoug, Jaakko Kiander and Pentti Vartia

The book compares and contrasts the experiences of Finland and Sweden, then adopts an international perspective, encompassing the experiences of Asia, Latin America, Denmark and Norway. Lessons from the 1990s crisis are drawn, and possible solutions prescribed. The conclusion is that long-term effects of financial crises – financial liberalization and integration – are not as dramatic as the short-term effects, but may prove to be of greater importance over time. Only the future will show whether these long-term benefits will balance or even outweigh the enormous short-term costs of the crises.

Chapter 8: How did Denmark Avoid a Banking Crisis?

Claus Vastrup

Subjects: economics and finance, financial economics and regulation


Claus Vastrup INTRODUCTION1 The financial situation of Danish commercial banks deteriorated in the late 1980s, and the problems peaked in the early 1990s. This was the first time since the Second World War with more than isolated problems in financial institutions, but the problematic situation never developed into a systemic crisis comparable to the banking crises in the other Nordic countries. Denmark did not experience bank failures to the same extent as Finland, Norway and Sweden as only a couple of small banks went bankrupt. Nor did the unfavorable conditions in the financial sector upset the macroeconomic situation in Denmark as the banking problems did in the other Nordic countries. This chapter explains how Denmark avoided a banking crisis like those of the other Nordic countries in the early 1990s even though Denmark was affected by the same European economic environment as its Nordic neighbors, that is, high economic growth in 1988–89, mixed performance and tensions in 1990–91 when Germany was unified, and the European recession and exchange rate crisis in 1992–93. The chapter is arranged as follows. First, I review some results from the literature on banking crises. Second, an overview of the problems of the Danish banking sector 1984–94 is given. Third, I search for microeconomic contributions to an explanation of the Danish record. Here the Danish record is compared with those of the other Nordic countries. Next, Danish macroeconomic developments are reviewed and interpreted. Finally, my conclusions on Denmark, relative to the other...

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