Banking System Bailout - Scandinavian Style

Journal of Applied Corporate Finance, Vol. 22, pp. 85-93, Summer 2010

Tuck School of Business Working Paper No. 2010-82

27 Pages Posted: 11 Sep 2010

See all articles by B. Espen Eckbo

B. Espen Eckbo

Tuck School of Business at Dartmouth; European Corporate Governance Institute (ECGI)

Multiple version iconThere are 2 versions of this paper

Date Written: August 1, 2010


This article reflects on some of the banking crisis resolution measures taken by the Swedish and Norwegian governments during the Scandinavian banking crisis of the early 1990s. Much as in the U.S. in 2008, the Scandinavian crisis two decades ago was preceded by a broad relaxation of bank lending standards, followed by a dramatic increase bank lending, decline in household savings, and a rise in housing prices. A decline in oil prices caused a macroeconomic contraction in (oil-exporting) Norway, which shook an already fragile banking system. Norway and Sweden chose two somewhat different routes to crisis resolution, both involving government intervention and both quite successful: The Norwegian government injected a hybrid debt-equity capital in the largest commercial bank but only after extinguishing old equity claims. The Swedish government issued a system-wide debt guarantee and allowed shareholders to maintain their equity stakes provided they also added new bank equity capital. In one bank, where equity-holders refused to participate, the government took over the bank and split it into a “good” and a “bad” part – the latter holding the non-performing loans. Lessons from Scandinavia are interesting today also because the recent U.S. banking system bailout, after some initial trial and errors, also ended up with government ownership of shares in financial institutions. I comment on the question of how the U.S. government, having effectively become “owner of last resort” in key financial institutions today, should handle its controlling equity stakes.

Keywords: Banking Crisis, Bailout, Bankruptcy, Government Shareownership, Governance

JEL Classification: D72, D78, E58, E63, E65, G21, G28, G33, P52

Suggested Citation

Eckbo, B. Espen, Banking System Bailout - Scandinavian Style (August 1, 2010). Journal of Applied Corporate Finance, Vol. 22, pp. 85-93, Summer 2010, Tuck School of Business Working Paper No. 2010-82, Available at SSRN: or

B. Espen Eckbo (Contact Author)

Tuck School of Business at Dartmouth ( email )

Hanover, NH 03755
United States
603-646-3953 (Phone)
603-646-3805 (Fax)


European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels

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