From Wikipedia, the free encyclopedia
The
Sweden financial crisis 1990?1994
was a
housing bubble
that took place in
Sweden
that deflated during 1991 and 1992, and resulted in a severe
credit crunch
and widespread bank
insolvency
. Similar crises took place in other countries around the same time, such as
in Finland
and the
Savings and loan crisis
in the
United States
. The causes of the crisis were similar to those of the
subprime mortgage crisis
of 2007?2008. In response, the government took the following actions:
[1]
- The government announced the state would guarantee all bank deposits and creditors of the nation's 114 banks.
- Sweden's government assumed
bad bank
debts, but banks had to write down losses and issue an ownership interest (
common stock
) to the government. Shareholders at the remaining large banks were diluted by private recapitalizations (meaning that they sold equity to new investors). Bondholders at all banks were protected.
- Nordbanken
and
Gotabanken
were granted financial support and nationalized at a cost of 64 billion
kronor
.
[2]
The firms' bad debts were transferred to the asset-management companies
Securum
and Retriva which sold off the assets, mainly real estate, that the banks held as collateral for these debts.
- When distressed assets were later sold, the proceeds flowed to the state, and the government was able to recoup more money later by selling its shares in the nationalized banks in public offerings.
- Sweden formed the Bank Support Authority
[3]
to supervise institutions that needed recapitalization.
This bailout initially cost about 4% of Sweden's GDP, later lowered to between 0?2% of GDP depending on various assumptions due to the value of stock later sold when the nationalized banks were privatized.
In September 2008, economists
Brad DeLong
and
Paul Krugman
proposed the Swedish experiment as a model for what should be done to solve the economic crisis that was affecting the United States at the time.
[4]
Swedish leaders who played a role in devising the Swedish solution and have spoken about the implications for other countries include
Urban Backstrom
and
Bo Lundgren
.
Relation to Japan
[
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]
Japan
, which was struggling to handle the deflationary situation due to the
Japanese asset price bubble
, since the early 1990s, were considering restructuring their economic policies around Sweden's, during that of the Swedish financial crisis, however, such policies never took place.
[5]
References
[
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]