Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/81368
Authors: 
Ostrup, Finn
Oxelheim, Lars
Wihlborg, Clas
Year of Publication: 
2009
Series/Report no.: 
IFN Working Paper 796
Abstract: 
Since July 2007 the world economy has experienced a severe financial crisis originating in the U.S. housing market. The crisis has subsequently spread to the financial sectors in European and Asian economies and led to a severe worldwide recession. The existing literature on financial crises rarely distinguish between factors that create the original strain on the financial sector and factors that explain why these strains lead to system-wide contagion and a possible credit crunch. Most of the literature on financial crises refers to factors that cause an original disruption in the financial system. We argue that a financial crisis with its contagion within the system is caused by failures of legal, regulatory and political institutions. <p> One policy implication of our view is that the need for various forms of rescues of financial firms in times of crises would be reduced if appropriate institutions could be put in place Lacking appropriate institutions to avoid contagion within the financial system and a potential credit crunch, ad hoc financial crisis management is required. We draw on experiences from the financial crises in the Nordic countries at the end of the 1980s and the beginning of the 1990s. In particular, the Swedish model for crisis resolution, which has received attention during the current crisis, is discussed in order to illustrate the problems policy makers face in a financial crisis without appropriate institutions. Current European Union approaches to the crisis are discussed before turning to policy implications from an emerging market perspective in the current crisis.
Subjects: 
Financial Crisis
Institutional Failure
Insolvency Procedures
Contagion
Systemic Effects
Macroeconomic Shock
Financial Crisis Management
Swedish Model
JEL: 
D53
E44
E58
F32
F42
F55
G15
G18
G21
G28
Document Type: 
Working Paper

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