The current financial crisis, which has lasted almost one and a half years, is the 19th such crisis in the post-war period in advanced economies. Recent literature classifies the Nordic crises in Norway, Sweden and Finland in late 1980’s and early 1990’s among the Big Five crises that have happened before the current crisis, which is now of a global nature. This paper outlines the developments of the Nordic crises, reasons behind them and crisis management by the authorities. Relatively more emphasis is placed on the Finnish crisis, as it was the deepest one. The paper concludes by considering the lessons that can be drawn from the Nordic crises.
Introduction: The current financial turmoil has now lasted well over a year. In the postwar period, the current crisis is the 19th in advanced economies and the first one in the 21st century. In a recent paper Carmen Reinhard and Kenneth Rogoff (2008) divide the 18 crises before the current US subprime crisis into ‘Big Five’ and smaller crises. The Big Five include the crises in Norway, Finland and Sweden that occurred mostly in early 1990’s. The Norwegian crisis started already in late 1980’s but continued into 1990’s.Nearly all major banks in the Nordic countries got into difficulties and made huge losses, with average loss provisions (expressed as percentage of lending) in the period 1982–1993 ranging from 2.1 (in Denmark) to 1.5 per cent (in Finland and Norway) of bank lending. In the sub-period 1990–1993 loss provisions were 2.9 per cent for Denmark, 3.4 per cent for Finland, 2.7 per cent for Norway, and 4.8 per cent in Sweden.All of the Nordic countries had to provide public support to their banking systems. In Denmark this support was small whereas in Norway, Sweden and Finland public support was quite significant with increasing importance in the indicated order of countries. The financial crises in Finland, Norway and Sweden became systemic, whereas Denmark avoided a systemic crisis. Thus, I will not cover the Danish case in any detail.
Author: Seppo Honkapohja
Source: Institute for Economies in Transition, Bank of Finland
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