Banking crises and crisis management in theory and practice in Sweden, 1900 – 1939

Description

The main questions in this project are why we have banking crises and what we can do about them. We argue that more bank-level research is needed to answer these questions, using mixed methods. Part of the project is to complete the construction of a quantitative database consisting of monthly bank level balance sheets for all commercial banks and the Swedish central bank, the Riksbank. We will also construct a qualitative bank-level database for the period, which we will combine with the quantitative database. The qualitative database will be based on the extensive material available at the Banking Inspectorate (BI), supplemented by material from the National Debt Office - in particular Kredtikassan AB, the toxic asset fund set up to save banks in the 1920s crisis - and relevant material from the Riksbank and the Swedish Parliament.

The combination of quantitative and qualitative data at the bank level allows for a unique study. The first key question is what specific characteristics made individual banks more or less prone to distress. Knowing more about the specific factors behind bank distress also means that we can examine which type of crisis management was the most effective, i.e. pre-emptive action by the authorities during the boom or intervention through LLR and/or bank bailouts to alleviate the ongoing stress.

This project is thus, to our knowledge, the first systematic study of preventive crisis management at the bank level for any economy. We do this by using the archives of the Swedish BI and asking three different questions: 1) what banking practices were perceived as risky, 2) how did the BI signal its concerns to the banks and what did the BI advise/force the banks to do in relation to its (the BI's) concerns, 3) what were the consequences of the BI's intervention and why?

In addition, we examine LLR and bank bailouts to see what the overall impact of bank support may have been on individual banks, the banking sector and the economy as a whole. A subsequent question is therefore how these different types of crisis management were combined and how they affected individual banks - in particular, the effects of asymmetric support to banks in crisis.

We have chosen to analyse the period 1900 to 1939 because it includes several crises, 1907, 1921-22 and 1931. It also includes different monetary regimes and the important First World War, which fundamentally changed markets and business prospects.