the swedish banking crisis and the swedish model. pehr wissén institute for financial research sifr...
Post on 11-Jan-2016
223 Views
Preview:
TRANSCRIPT
The Swedish Banking Crisis and the Swedish Model.
Pehr WissénInstitute for Financial Research SIFR
June 23 2009
1
2
” How did you go bankrupt? ” Bill asked. ” Two ways, ” Mike said.
” Gradually and then suddenly. ”
Ernest Hemingway ” The Sun also Rises ”
1. Background; Macro
3
Market share for the five largest banks
• Finland 90%• Denmark 87%• Sweden 83%• Norway 60%• EU15 58%
• Source: Swedish Bankers Association 2000
4
Deregulations
• Deregulation 1982-1985 Lending ceilings Interest rate controls Liquidity quotas Capital controls
5
After the deregulation
• Credit boom• New market environment for the banks• Increased competition• Lax lending standards• Lending boom outside the banking sector
6
Macro policy
• Inflationary fiscal policy• Fixed exchange rate
Tax policy:• Nominal interest deductible at 50% marginal
tax rate• Low property tax
7
The fixed exchange rate
• Customers borrowing in baskets of foreign currencies, investing in domestic commercial property
• Banks intermediaries
8
2. The Housing Bubble
9
Climate for a Bubble
The combination of:1. A fixed exchange rate2. Deregulation.3. Deductability for interest payments4. Low after tax interest rates5. Capital controls which locked in investments gave good ground for a bubble
10
11
12
Prices of office buildingsReal price indexes for prime location office buildings
Source: Newsec and Sveriges Riksbank
0
100
200
300
400
500
82 85 88 91 94 97 00 03 06 09
Stockholm Göteborg Malmö
13
Swedish house pricesNominal house price indexes
Source: Statistics Sweden
0
100
200
300
400
500
600
700
86 88 90 92 94 96 98 00 02 04 06 08
0
100
200
300
400
500
600
700
Riket Storstockholm Storgöteborg Stormalmö
3. The financial/banking crisis.
14
15
The Crisis• Triggers
– ERM crisis– Tax reform
• Propagating mechanisms– The demise of the finance companies
• Liquidity disappearing from the commercial paper market– Commercial property
• Fire sales• Illiquidity• Massive credit losses
– Housing: The third wave• Transaction volumes down• Small credit losses.
The sequence of events
• Fall 1991; Nordbanken and Första Sparbanken in crisis. Government providing equity for Nordbanken.
• Spring 1992; Situation worse for Nordbanken, Första Sparbanken and Gota.
Considered a systemic crisis.• Fall 1992; Government blanket guarantee.
Political consensus.
16
Sequence of events.
• Fall 1992; Liquidity in foreign currency from the Central Bank.
• Riksdag decided on an unlimited frame for government support
• Spring 1993; Bank Support Authority formed.• All major banks exept one ( Handelsbanken )
applied for government assistance.• Nordbanken and Gota nationalized
17
Sequence of events
• Spring 1993; The other banks raised equity from private sources.
• Bad banks formed by all banks. Securum and Retriva for the government owned banks.
• July 1st 1996; Blanket guarantee and special legislation abolished.
18
19
Losses then and nowOperating profits and credit losses, major Swedish banks, billion SEK, 2008 prices
Source: Sveriges Riksbank
-20
0
20
40
60
80
100
dec-90 dec-92 dec-94 dec-96 dec-98 dec-00 dec-02 dec-04 dec-06 dec-08
Resultat före kreditförluster Kreditförluster
20
4. The Swedish Model
21
The Swedish model
• The blanket guarantee. There was no deposit insurance• Funding the banks in foreign currency• Takeover of failed banks• Forming bad banks for the acquired banks• Private banks setting up bad banks • Eventual sale of bad banks and acquired banks
22
23
24
The bad banks
• Securum and Retriva• Set up to allow normal management of the
good banks.• Not a purchase of assets• Bad loans set aside – one bad bank for each
bank• Careful valuation of the bad assets• Full tranparency
25
The bad banks
• Expected to be in operation 10-15 years• Wound up in 1997 with a better result than
expected
26
5. An International Comparison
27
28
29
30
31
32
6. The present crisis and the Swedish banking system
33
34
Source: Hyun Song Shin 2009
top related