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BANKING CRISIS

US learns lessons from Swedish banking crisis

The US debt rescue plan has sought inspiration from the work to tackle the Swedish banking crisis at the beginning of the 1990s.

“I have been in the USA several times this year to explain what we did,” said Bo Lundgren at the Swedish National Debt Office.

“There can be significant similarities,” Lundgren added.

Lundgren was finance minister in the 1991 right-wing government and, together with current and former Riksbank heads Stefan Ingves and Urban Bäckström, was the architect behind the bank support committee (Bankstödsnämnden or Bankakuten) which did much to alleviate the crisis that raged in the Swedish banking system from 1990-94.

Several years of hysterical property and commodity speculation in the 1980s plunged Sweden into its worst financial crisis since the 1930s.

“There are significant similarities between the current American financial crisis and our own financial crisis at the beginning of the 1990s. It concerns a finance and property bubble that has lead to large losses in the the banking sector.”

Lundgren argues, like the US president George Bush, that governments have a major part to play in such exceptional situations, adding that there is a good chance of reclaiming the money.

“The sums that we had to cover amounted to 60 billion kronor ($9.83 billion). But together with the resurrection of Nordbanken meant that by 1997 the outlay had been more than halved by reclamations,” said Lundgren.

“And since then the state has probably been reimbursed all of the money. The money went primarily to Nordbanken and Gota Bank, which later merged, and to the liquidation firms Securum and Retriva.

Securum and Retriva’s task was to take care of all the bad debt held by Nordbanken and Gota Bank.

The US treasury is reported by the BBC to be preparing a $800 billion fund to buy back a large proportion of US mortgage market debt. The intention is to store the debt in one organisation on behalf of the taxpayer until such time as they can be sold off.

STATISTICS

Bankruptcies continue to decline

The number of business failures in Sweden declined in February by 21 percent, continuing the positive trend of the last few months, a new report shows.

All three of Sweden’s big city regions showed a decline in bankruptcies, with retail and services rebounding strongly.

478 firms went to the wall during the month, a decline of 21 percent on February 2009, according to statistics from UC, Sweden’s largest business and credit information agency.

For the year to date, 962 firms have filed for bankruptcy, a decline of 18 percent on the corresponding period of last year.

“The beginning of the year has been positive for most Swedish firms,” UC’s marketing head Roland Sigbladh said in a company statement on Monday.

The retail sector is showing signs of continued strength, with services and manufacturing declaring greater faith in the future.

Bankruptcies have declined by a third among retail firms and those operating within law, financials, science and technology over the past year.

The construction industry is lagging behind the upswing, according to the UC report while the property sector has been affected by weaker demand. Several export firms have been hit by the recent strengthening in the Swedish krona.

Despite the positive outlook in the first months of 2010 UC writes that the coming spring and summer periods are laced with uncertainty, with some 5,000 companies owing outstanding taxes for 2009.

UC also warned of the effects on private consumption that interest rate rises may bring although any overhanging factors affecting macro economic development are largely outside of Sweden’s control, the company concludes.

“Insecurity over a new recession concerns mostly the impact of international factors, as the situation in the Swedish economy is stable,” Roland Sigbladh at UC said.

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