Research Discussion Papers, Bank of Finland
Heikki Koskenkylä and Jukka Vesala
Finnish Deposit Banks 1980–1993: Years of Rapid Growth and Crisis
Abstract: This study investigates the growth of Finnish deposit
banks over the period 1980–1993. We examine the growth in balance sheets,
lending and deposits of the public as well as major changes in the balance
sheet structure. The focus of the study is first on the overall banking
industry and second on the commercial, savings and cooperative banks as
groups, including a separate treatment of the largest commercial banks. The
study ends with a brief comparison of the Nordic countries. Also included
is a discussion of changes that have occurred in the banking environment,
but the emphasis is on the effects of bank-specific microeconomic factors
on the rapid acceleration in the growth of bank lending and on the heating
up of competition for market share, which took place after lending rates
were deregulated and foreign exchange regulations eased. The micro factors
examined are the change in banks' risk profile during the period of rapid
growth as well as the various incentives behind the growth and competition
for market share. To be sure, changes in the banking environment and
macroeconomic developments have played a role in fomenting the banks'
profitability crisis in the beginning of the 1990s, but the main reasons
for the crisis can be found in the banks' strategic choices.
Keywords: deposit banks; banking crisis; financial deregulation; (follow links to similar papers)
36 pages, August 1, 1994
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