Rolf Englund IntCom internetional
"Five out of seven of Sweden’s largest banks, covering 90 percent of the market, were de facto insolvent"
In the fall of 1992, the situation had almost spun out of control.
In the fall of 1992, the situation had almost spun out of control. Five out of seven of Sweden’s largest banks, covering 90 percent of the market, were de facto insolvent, and we had to face the fact that all earlier measures had been insufficient. The non-performing loans exceeded by far the banking sector’s total equity capital, and it was obvious that even more decisive actions were necessary. To establish a firm base for further measures, the government, backed by the opposition, issued a bank guarantee that provided protection from losses for all creditors except shareholders. There was no specified sum mentioned in the parliament’s legislation, and the government got a wide mandate to act in other respects as well.
The direct outlays were equivalent to 4 percent of GDP, and most of it could later be recovered.
Parallel with the direct measures to counter the effects of the credit crunch, strong actions were taken to stabilize the macroeconomic situation. This was necessary because the macroeconomic imbalances reinforced the banking crisis just as the banking failures threatened the overall stabilization process.
There is always a risk for moral hazard when you bail out the losses. The best way to avoid this is, of course, to gear the terms of recapitalization in such a way that the shareholders, which often should include the management, will have to pay for their mistakes.
The US has the largest economy in the world and in its real economy the fundamentals are still very strong;
Proposition 1991/92:168 om statligt engagemang för lösning av krisen i Sparbanken Första AB
I propositionen föreslås att staten medverkar till en
lösning av den ekonomiska krisen i Sparbanken Första AB
på så sätt att staten genom riksgäldskontoret skall
dels lämna ett lån på 3,8 miljarder kronor till
Riksdagen beslutade därefter i december 1991 (prop.
1991/92:63, bet. NU12) att staten med en lånegaranti skulle
medverka i en rekonstruktion av nuvarande Sparbanken Första AB.