Academic journal article Texas International Law Journal

Of Herring and Sausage: Nordic Responses to Banking Crises as Examples for the United States

Academic journal article Texas International Law Journal

Of Herring and Sausage: Nordic Responses to Banking Crises as Examples for the United States

Article excerpt

I. INTRODUCTION

In reporting the rapid and complex actions of the United States government in addressing the financial crises of 2008-2009, some have noted similarities in response to those of the Nordic governments during their banking crisis of the late 1980s and early 1990s.1 Often enough, the limitation on space available for these reports has prevented any detailed review in the U.S. legal literature of the actions, regulatory environment, and the later developments in the areas that seem to have precipitated the actions in the crisis. The remarks below examine the Nordic crises- involving banks based in Norway, Sweden and Finland- in light of their prospects as examples in the fluid environment in the U.S. banking (and other financial) markets.

We owe much to the helpful descriptions and analyses by Norwegian, Finnish, and some Swedish writers (many of them regulators) of their own regulatory regimes, troubles in financial institutions, and responses.2 We hope, all the same, that the discussions that follow bring to the facts an American understanding of the dynamics in the Nordic areas in the early 1990s, as those may deepen some understanding of American actions thus far taken, as well as those to be taken. The fluidity of the current situation necessarily makes inappropriate any predictions of results or a fixed approach in the U.S. situation, so we hope to avoid that course of analysis, notwithstanding its seductive attractions.

The first point of substance worth noting is that we concentrate on banking crises and responses. The object of the following discussion is crisis- it is not distress, missteps, declines in profitability, or a general deterioration in the safety of particular institutions. Rather, crisis means a situation in which the banking system itself- the system of funding of loans, of money transfer, of many mechanisms of investment- is itself in palpable danger of collapse. The situation is one of emergency, not of difficulty (but it is preceded and followed by difficulty), a situation of systemic, not individual, dysfunction (but it includes many instances of individual institutions' malfunction), a situation in which the essentially boring, ignorable, and mechanical process of funds availability may cease to perform the functions that all financial, commercial, and individual participants presume will always be available.3

It bears note that not every reader of this piece may have devoted herself wholeheartedly to in-depth studies of the recent financial history of the non-Danish and non-Icelandic Nordic areas. Accordingly, much of the discussion below will cover points that may be obvious or well known to professional students of the area. The main time frame for severe banking difficulties in these Nordic countries covered several years-beginning first in Norway in 1988 and continuing for all countries until around the end of 1992. Because there seems to have been no single regulatory change that triggered the implosions, the discussion below examines each country individually, describing the scope of regulation that became liberalized through the 1980s in general terms, and paying more particular attention to the status of the forces acting on banks during the late 1980s and early 1990s. In light of the regulatory environment, the discussion reviews the steps taken by each country in its efforts to rescue its banking systems. Then, we explore the results of the rescue efforts, highlighting the extent to which each country has maintained or divested equity positions in banks acquired during the resolution efforts. With an understanding of the Nordic experience of 1988 to 1992, and its results, a comparison can then be made to the present U.S. bank regulatory environment.

Finally, it should be noted that in this short discussion, focus is paid to the main issues of bank regulation and the resolutions of each banking crisis. The views put forward here are intended only to hold up some examples from the Nordic situations, which have been completed, and to illuminate, for the unfamiliar circumstances facing the United States today, potential contours of the discussion that might otherwise be overlooked. …

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