The 1980s financial liberalization in the Nordic countries
Bank of Finland Research Discussion Papers 36 • 2012
Electronic copy available at: http://ssrn.com/abstract=2190375
The 1980s financial liberalization in the Nordic countries1
Bank of Finland Research Discussion Papers 36/2012
Seppo Honkapohja Monetary Policy and Research Department
Abstract
The financial liberalization in the four Nordic countries (Denmark, Finland, Norway, and Sweden) that took place mostly in the 1980s led to a major financial crisis in three of those countries. The crises in Finland, Norway, and Sweden are among the deepest financial crises in advanced market economies since World War II. Denmark experienced some banking problems but managed to avoid a systemic crisis. This paper reviews the process of liberalization and discusses the reasons why Finland, Norway, and Sweden drifted into financial and economic crises. Keywords: financial repression, credit rationing, capital account controls, financial deregulation JEL classification numbers: E42, F36, G28
I am grateful to Tapio Korhonen for extensive assistance. Adam Gulan, Hanna Putkuri, and Juhana Hukkinen helped in specific aspects of work. Jarmo Kontulainen and Juha Tarkka provided useful comments. The views expressed are my own and do not necessarily represent those of the Bank of Finland.
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Electronic copy available at: http://ssrn.com/abstract=2190375
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Introduction
The banking and economic crisis that occurred in the Nordic countries in the 1990s has ever since received wide international attention. The episode was the most serious economic and financial crisis experienced by advanced market economies in the period subsequent to WWII. 2 In particular, the nearly 15% plunge in Finland’s aggregate output in a period of two or three years was a surprising and unusual event. 3 The
