Here's a very quick summary of my understanding of the Swedish reaction to their banking crisis. Their handling of their crisis has been widely admired and is seen has having been far superior to that of the Japanese or the Americans during the Savings and Loans crisis. In fact, it is widely referenced as a model for others. I want to compare it with the government's approach. I'm not 100% sure of all the details here as my knowledge is largely based on a single article.
First of all, in the words of the Swedish Minister at the time, Urban Bäckström, the background to their crisis will sound familiar, I think:
In contrast, and I don't mean it too cruelly, while Bäckström had only been on the job a few days before getting the call that a large Swedish bank was about to collapse, he had considerable experience in finance and had a degree in economics. He is well able to reference the economics papers which influenced their policy decisions.
In any case, on getting the news that the bank was within days of collapsing which could bring down others, the Swedish reaction was similar to our one. While he had serious reservations, he reasoned that first and foremost liquidity had to be provided to the banks to provide some stability and he did this with a general guarantee of the banking system which was similar the Irish one.
His next step was different. A clear separation between liquidity and solvency issues was made to the extent that he had separate organisations managing each. The immediate next step was to go over each bank's loans and have them re-valued according to the market and economic situation at the time. Again he had reservations as he recognised the effect in a depressed property market but he reasoned the alternative - a long slow drawn out write down - was significantly more risky. The Irish government has seemingly take the opposite approach.
As a result of the above the Swedish banks were divided into categories, one of which was the nonviable banks. These were quickly wound up and their loans were liquidated even if at heavy losses. Even the other banks were forced to take their lending losses on the chin but the guarantee effectively provided them with long term equity but the message was harsh and clear that this credit would not available indefinitely and that ultimately the holes in their balance sheets would have to be filled by high profitability (by increasing operating efficiency) and eventually raising shareholder equity.
It certainly seems like a more coherent and better planned approach than that of the government.
First of all, in the words of the Swedish Minister at the time, Urban Bäckström, the background to their crisis will sound familiar, I think:
In contrast, and I don't mean it too cruelly, while Bäckström had only been on the job a few days before getting the call that a large Swedish bank was about to collapse, he had considerable experience in finance and had a degree in economics. He is well able to reference the economics papers which influenced their policy decisions.
In any case, on getting the news that the bank was within days of collapsing which could bring down others, the Swedish reaction was similar to our one. While he had serious reservations, he reasoned that first and foremost liquidity had to be provided to the banks to provide some stability and he did this with a general guarantee of the banking system which was similar the Irish one.
His next step was different. A clear separation between liquidity and solvency issues was made to the extent that he had separate organisations managing each. The immediate next step was to go over each bank's loans and have them re-valued according to the market and economic situation at the time. Again he had reservations as he recognised the effect in a depressed property market but he reasoned the alternative - a long slow drawn out write down - was significantly more risky. The Irish government has seemingly take the opposite approach.
As a result of the above the Swedish banks were divided into categories, one of which was the nonviable banks. These were quickly wound up and their loans were liquidated even if at heavy losses. Even the other banks were forced to take their lending losses on the chin but the guarantee effectively provided them with long term equity but the message was harsh and clear that this credit would not available indefinitely and that ultimately the holes in their balance sheets would have to be filled by high profitability (by increasing operating efficiency) and eventually raising shareholder equity.
It certainly seems like a more coherent and better planned approach than that of the government.