Scandinavian Working Papers in Economics

Lund Papers in Economic History,
Lund University, Department of Economic History

No 246: The Highs and the Lows: Bank failures in Sweden through inflation and deflation, 1914-1926

Seán Kenny (), Anders Ögren and Liang Zhao ()
Additional contact information
Seán Kenny: Department of Economic History, Lund University, Postal: Department of Economic History, Lund University, Box 7083, S-220 07 Lund, Sweden
Anders Ögren: Department of Economic History, Uppsala University
Liang Zhao: Department of Economic History, Lund University, Postal: Department of Economic History, Lund University, Box 7083, S-220 07 Lund, Sweden

Abstract: This paper revisits the Swedish banking crisis (1919-26) that materialized as post war deflation replaced wartime inflation (1914-18). Inspired by Fisher’s ‘debt deflation theory’, we employ survival analysis to ‘predict’ which banks would fail, given certain ex-ante bank characteristics. Our tests support the theory; maturity structures mattered most in a regime of falling prices, with vulnerable shorter-term customer loans and bank liabilities representing the most consistent cause of bank distress in the crisis. Similarly, stronger growth in i) leverage, ii) weaker collateral loans and iii) foreign borrowing during the boom were all associated with bank failure in post- war Sweden (1919-26).

Keywords: Banking crisis; survival analysis; early warning indicators; debt deflation; maturity mismatch; Sweden

JEL-codes: E58; G01; G21; G28; N24

Language: English

91 pages, January 17, 2023

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