The 1990–1994 Swedish financial crisis took place in

Sweden Sweden, formally the Kingdom of Sweden, is a Nordic countries, Nordic country located on the Scandinavian Peninsula in Northern Europe. It borders Norway to the west and north, and Finland to the east. At , Sweden is the largest Nordic count ...

when the deflation of a

housing bubble A housing bubble (or housing price bubble) is one of several types of asset price bubbles which periodically occur in the market. The basic concept of a housing bubble is the same as for other asset bubbles, consisting of two main phases. First t ...

caused a severe

credit crunch A credit crunch (a credit squeeze, credit tightening or credit crisis) is a sudden reduction in the general availability of loans (or credit) or a sudden tightening of the conditions required to obtain a loan from banks. A credit crunch generally ...

and bank crisis and a deep recession. Similar crises took place in countries around the same time, such as in Finland and the Savings and Loans crisis in the

United States The United States of America (USA), also known as the United States (U.S.) or America, is a country primarily located in North America. It is a federal republic of 50 U.S. state, states and a federal capital district, Washington, D.C. The 48 ...

. The causes of the crisis were similar to those of the

subprime mortgage crisis The American subprime mortgage crisis was a multinational financial crisis that occurred between 2007 and 2010, contributing to the 2008 financial crisis. It led to a severe economic recession, with millions becoming unemployed and many busines ...

of 2007–2008. In response, the government took the following actions: * The government announced the state would guarantee all bank deposits and creditors of the nation's 114 banks. * Sweden's government assumed

bad bank A bad bank is a corporate structure which isolates illiquid and high risk assets (typically non-performing loans) held by a bank or a financial organisation, or perhaps a group of banks or financial organisations. A bank may accumulate a large p ...

debts, but banks had to write down losses and issue an ownership interest (

common stock Common stock is a form of corporate equity ownership, a type of security. The terms voting share and ordinary share are also used frequently outside of the United States. They are known as equity shares or ordinary shares in the UK and other C ...

) to the government. Shareholders at the remaining large banks were diluted by private recapitalizations (meaning that they sold equity to new investors). Bondholders at all banks were protected. *

Nordbanken Nordea Bank Abp, commonly referred to as Nordea, is a Nordic financial services group operating in northern Europe with headquarters in Helsinki, Finland. The name is a blend of the words "Nordic" and "idea". The Nordic countries are considered ...

and Götabanken were granted financial support and nationalized at a cost of 64 billion kronor. The firms' bad debts were transferred to the asset-management companies Securum and Retriva which sold off the assets, mainly real estate, that the banks held as collateral for these debts. * When distressed assets were later sold, the proceeds flowed to the state, and the government was able to recoup more money later by selling its shares in the nationalized banks in public offerings. * Sweden formed the Bank Support Authority to supervise institutions that needed recapitalization. This bailout initially cost about 4% of Sweden's GDP, later lowered to between 0–2% of GDP depending on various assumptions due to the value of stock later sold when the nationalized banks were privatized. In September 2008, economists

Brad DeLong James Bradford "Brad" DeLong (born June 24, 1960) is an American economic historian who has been a professor of economics at the University of California, Berkeley, since 1993. Early life and education DeLong was born in Boston, Massachusett ...

and

Paul Krugman Paul Robin Krugman ( ; born February 28, 1953) is an American New Keynesian economics, New Keynesian economist who is the Distinguished Professor of Economics at the CUNY Graduate Center, Graduate Center of the City University of New York. He ...

proposed the Swedish experiment as a model for what should be done to solve the economic crisis that was affecting the United States at the time. Swedish leaders who played a role in devising the Swedish solution and have spoken about the implications for other countries include

Urban Bäckström Urban Bäckström (born 25 May 1954 in Sollefteå, Västernorrlands län) is a Swedish economist who was CEO of the Confederation of Swedish Enterprise from 2005 to 2014 and governor of the Bank of Sweden from 1994 to 2002. Personal life Bäck ...

and

Bo Lundgren Bo Axel Magnus Lundgren (born 11 July 1947) is a Sweden, Swedish politician who served as the leader of the Moderate Party from 1999 to 2003.Japanese asset price bubble The was an economic bubble in Japan from 1986 to 1991 in which real estate and stock market prices were greatly inflated. In early 1992, this price bubble burst and the country's economy stagnated. The bubble was characterized by rapid acceler ...

in the early 1990s, officials considered restructuring economic policy according to Sweden's example following its own financial crisis. These policy changes were never implemented in Japan.

References

{{DEFAULTSORT:Sweden financial crisis 1990-1994 1990 in economic history 1991 in economic history 1992 in economic history 1993 in economic history 1994 in economic history 1990 in Sweden 1991 in Sweden 1992 in Sweden 1993 in Sweden 1994 in Sweden Bad banks Economic crises in Europe Economic history of Sweden Banking crises Early 1990s recession Financial crises Economic bubbles