Scandinavian Working Papers in Economics

Working Paper Series,
Sveriges Riksbank (Central Bank of Sweden)

No 358: Predictors of Bank Distress:The 1907 Crisis in Sweden

Anna Grodecka (), Seán Kenny () and Anders Ögren ()
Additional contact information
Anna Grodecka: Research Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Seán Kenny: Lund University, Postal: Box 117, 221 00 Lund, Sweden,
Anders Ögren: Lund University, Postal: Box 117, 221 00 Lund, Sweden,

Abstract: This paper contributes to literature on bank distress using the Swedish experience of the international crisis of 1907, often paralleled with 2008. By employing previously unanalyzed bank-level data, we use logit regressions and principal component analysis to measure the impact of pre-crisis bank characteristics on the probability of their subsequent distress. The crisis was characterized by “creative destruction,” as those banks with weaker corporate governance structures, wider branching networks, operating with lower cost efficiency were more likely to experience distress. We find that poor credit allocation rather than foreign borrowing, as often stressed, were associated with ultimate demise.

Keywords: Bank Distress; Financial Crises; Swedish Banks; Lender of Last Resort

JEL-codes: E58; G21; G28; H12; N23

62 pages, October 1, 2018

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