Research Discussion Papers, Bank of Finland
No 7/1994:
The Finnish Banking Crisis and Its Handling (an update of developments through 1993)
Peter Nyberg and Vesa Vihriälä
Abstract: The paper is an update through early 1994 of a similarly
titled paper (Bank of Finland Discussion Papers 8/93). It 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 in section 3 of the new
measures taken in 1992 and 1993, with the emphasis on the establishment of
the Government Guarantee Fund, its organization, powers and principles of
operation. Section 4 gives an account of the support measures taken by the
Goverment Guarantee Fund in the course of 1992 and the whole of 1993.
Finally, in section 5, we discuss the banks' current economic environment
and their prospects in the near future, now also brought forward into early
1994. 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 most with the current crisis
are included.
Keywords: banking; crisis; (follow links to similar papers)
52 pages, April 18, 1994
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