From local to global – today's crisis in the light of yesterday's

Date 28/11/2008

In its latest Financial Stability Report, the Riksbank presents an analysis of the ongoing financial crisis from the perspective of the Swedish bank crisis of the early 1990s. The analysis is an attempt to understand the current crisis in the light of previous Swedish experience. It also represents a contribution to the debate on what is the key to the solution of the crisis.

 

The analysis begins with a comparison between what is happening now and what happened in Sweden at the beginning of the 1990s. The Riksbank examines how the underlying weaknesses have developed, how these weaknesses have gradually become apparent and how the crisis has subsequently spread. From this starting point, we discuss crisis management in both theoretical and practical terms. The Riksbank also addresses the lessons to be learned from the two crises and the direction of the forward-looking work on the regulation and supervision of the financial markets.

 

The Riksbank notes that many of the elements of the Swedish bank crisis in the early 1990s are evident again in the current situation. However, there are also significant differences. The Swedish bank crisis was local and could be resolved by applying national measures. The crisis was also easier to overcome as the global economy was experiencing an upswing at the time. The current crisis, on the other hand, is highly international both in terms of the causes and the need for coordinated measures. In addition, the markets are now being affected by a global, negative interplay between the crisis and the slowdown in economic activity.

 

The key question in the effort to resolve the present crisis is, as in the case of other financial crises, how to restore confidence on the financial markets. The measures taken so far have not yet been able to do this. However, these measures can be seen as building blocks in the work to normalise the situation on the markets.