Research Discussion Papers, Bank of Finland
No 8/1993:
The Finnish Banking Crisis and Its Handling
Peter Nyberg and Vesa Vihriälä
Abstract: The paper gives a brief description of the evolution of
the Finnish banking crisis and its handling. In the first section, the
salient features of the Finnish banking system are described. We then
briefly discuss the liberalization process, macroeconomic and regulatory
policies, and the subsequent credit boom and its development into a
recession of unprecedented depth. Next, we document the impact on bank
profitablity of the drastic changes in macroeconomic conditions. The
collapse and rescue of Skopbank are summarized. In section 2 we describe
the public safety net, starting with the pre-crisis arrangements. This is
followed by an exposition of the new measures taken in 1992, with the
emphasis on the establishment of the Government Guarantee Fund, its
organization, powers and principles of operation. Section 3 gives an
account of the support measures taken by the Goverment Guarantee Fund in
the course of 1992 and in early 1993. Section 4 describes the reform of the
bank support arrangements in the early months of 1993. Finally, in section
5, we discuss the banks' current economic environment and their prospects
in the near future. We also take up some of the major issues of principle
relating to the rationalization of the banking sector. The paper includes
references to recent articles and discussion papers dealing with important
aspects of the current banking crisis. The list of references is by no
means exhaustive, and it is designed mainly to help foreign readers to find
supplementary material. Therefore only those papers in Finnish or Swedish
which have to do directly with the current crisis are included.
Keywords: banking; crisis; (follow links to similar papers)
46 pages, April 29, 1993
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