Swedish banking rescue

The Swedish banking crisis from 1990 to 1992 was a severe banking crisis in Sweden, which was triggered by a speculative bubble in the housing market.

Prehistory

In the 80s, the Swedish economy experienced a boom. Low real interest rates ( interest rates were nominally high, but the high rate of inflation could appear lucrative investments in real estate ), a liberalization of cross-border movement of capital and especially the tax law led to a massive rise in property prices. Part of the " Scandinavian model " is a high income tax burden. In the 80s, it was possible to subtract from taxable income up to 50 percent of the interest rates. This was not only a strong incentive to purchase real estate, but most of all, to borrow against this high.

The banks financed confidence in the value of the property to a large extent the acquisition of property. This demand was further fueled: A real estate bubble large extent formed. Between 1987 and 1993, real estate was built to the equivalent of 400 billion crowns.

The crisis

Beginning of the 90s the bubble burst. The economic situation worsened. Housing prices began to fall. Above all, the Swedish krona fell under significant downward pressure. In 1990, the first banks ran sign due to the market development in trouble and had to bankruptcy.

In the fall of 1991, the crisis reached its first major market participants: The largest Swedish bank, which (for the most part state-owned standing ) Northern banks stood before the collapse. The Swedish government led the Bank to fresh equity capital and took over the shares still privately owned. The bad loans were transferred to a bad bank.

The confidence of investors and shareholders in the stability of the banking sector but the level is not restored. All banks were sitting on a mountain of bad loans. The liabilities of the Swedish banks totaled 175 billion crowns. Banks' capital is not allowed to perform the necessary depreciation. 1992 was also the first savings bank (now Swedbank ) before the corner. Again, the bad loans into a bad bank have been outsourced, for which adhered to the state. In order to ensure the survival of the bank, the Swedish government had to give a guarantee for all deposits of these savings.

In September 1992, the crisis reached its climax. The Swedish krona was under massive pressure to devalue. On 17 September 1992, the Riksbank had to increase the base rate to 500 percent to support the crown. This measure asked about the Swedish banks and borrowers massive. In Sweden, it is traditional to make real estate loans with variable interest rates. Thus, increases in interest rates not only affect new loan agreements, but to all.

On 24 September 1992, the clearance was. The Swedish government extended its warranty on all banks. The magnitude unlimited guarantee applied to all creditors of these institutions. At the same time for the other banks bad banks set up and the banks so relieved accounting requirement. These measures had. Confidence in the banks was restored and saved the banks.

The consequences

The banking system of Sweden was unrecognizable. Four big banks are now represented the vast majority of the banking market. A large number of banks were merged with other houses. This decreased the intensity of competition. The banks were able to increase their margins significantly and quickly make up for the losses of defaults. At the same time considerable rationalization measures have been taken which meant that Swedish banks were among the most profitable banks in the world from the mid- 1990s.

The economy was able to recover quickly again. This made it possible to keep the cost to the government limited. The cost to the government initially amounted to about 65 billion crowns. This corresponded to 4% of gross domestic product. This sum he had taken bad loans and transfer the newly created Bankstödsnämnden ("Official Bank to support "). Over the following years the state could get back or liquidate at least as much of the loans ( " junk bonds " ) and again that the entire action resulted in a profit for the taxpayer 's bottom line.

Even if the government was praised for crisis management in many cases, the measures were unpopular. 1994 lost that the parliamentary elections, and the Socialists took over the government.