Drees, Burkhard and Ceyla Pazarbasioglu, 1995, “The Nordic Banking Crises: Pitfalls in Financial Liberalization?” IMF Working Paper 95/61, June (Washington: International Monetary Fund).
Drees, Burkhard and Ceyla Pazarbasioglu, 1998, “The Nordic Banking Crises: Pitfalls in Financial Liberalization?” IMF Occasional Study (forthcoming).
Gronvik, Gunnvald, and Cecile Rom, 1995, “Structural Changes in Norwegian Financial Markets 1989–1994,” Norges Bank Economic Bulletin, Q3.
Karlsen, Harald, 1994, “The Norwegian Banking Crisis–Rescue Operations in the Period 1988–1993,” Norges Bank Economic Bulletin, Q1.
Ordoobadi, David, 1996, Recent Developments in the Norwegian Financial System, in IMF Norway–Background Paper, SM/96/17, January, (Washington: International Monetary Fund).
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Prepared by Scott B. Brown. This paper reflects information drawn from the sources cited in the bibliography and discussions with representatives of the Norges Bank; the Banking, Insurance, and Securities Commission (Kreditilsynet); the Ministry of Finance and Customs; the Bankers’ Association; and the Savings Bank Association.
Commercial banks’ minimum capital/asset ratio had been lowered in 1961 from 10 to 8 percent, and again in 1972 from 8 to 6.5 percent. In conjunction with the 1972 reduction, the asset base for the requirement was also narrowed.
Prior to the crisis, the formal safety net for the banking system relied on three components: banks’ own capital and two deposit guarantee funds financed by contributions from the banks, the Commercial Bank Guarantee Fund and the Savings Bank Guarantee Fund. In addition, as noted above the Norges Bank became an increasingly important source of liquidity for the system in the 1980’s, facilitating the sharp increase in bank credit.
The situation was further complicated in late 1992 by sharp increases in Norwegian interest rates, in the attempt to defend Norway’s fixed exchange rate during the period of turbulence in the European Monetary System.
Total official support thus totaled 3.2 percent of GDP, and total financial intervention including the use of the guarantee funds’ own resources was 4.2 percent of GDP. For reference, direct official support during the banking crises of the early 1990’s in Finland and Sweden was equivalent to 10 percent and 4 percent of GDP, respectively, with additional assistance through guarantees of 6 percent and 2 percent of GDP.
The government is also owner of the Postal Savings Bank, the third-largest bank in Norway, and a number of small “traditional” state banks, including the Housing Bank and the Industrial and Regional Development Fund.
On-site examinations are now held annually for large banks, and on a 5–6 year cycle for smaller banks. The BISC also uses indicators of potential problems, such as a high rate of growth of assets, to trigger more frequent examinations.
Such legal impediments include provisions that no investor may acquire more than a 10 percent ownership stake in a financial institution (waived temporarily for the government’s takeover of major commercial banks during the banking crisis); and that a one-third vote of shareholders is sufficient to block a change in corporate statutes (e.g., merger, change in share capital, or relocation of the corporate headquarters).