Origins and Resolution of Financial Crises: Lessons from the Current and Northern European Crises

Reprint No. 2009:32

Author(s): Finn Østrup, Lars Oxelheim and Clas WihlborgYear: 2009 Title: Asian Economic Papers Volume (No.): 8 (3) Pages: 178–220

Origins and Resolution of Financial Crises: Lessons from the Current and Northern European Crises Finn Østrup, Lars Oxelheim and Clas Wihlborg

Since July 2007, the world economy has experienced a severe financial crisis that originated in the U.S. housing market. Subsequently, the crisis has spread to financial sectors in European and Asian economies and led to a severe worldwide recession. The existing literature on financial crises rarely distinguishes 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.

One policy implication of our view is that various forms of financial rescue would be reduced in times of crisis if appropriate controls and safeguards were already in place. 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 to illustrate the problems policymakers face in a financial crisis without appropriate institutions. We discuss European Union approaches to the current crisis before turning to policy implications from an emerging market perspective in the current crisis.

Østrup, Finn, Lars Oxelheim and Clas Wihlborg (2009), "Origins and Resolution of Financial Crises: Lessons from the Current and Northern European Crises". Asian Economic Papers 8(3), 178–220.

Lars Oxelheim


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Interdisciplinary European Studies

The European Union and the Return of the Nation State


This book explores the complex and ever-changing relationship between the European Union and its member states. The recent surge in tension in this relationship has been prompted by the actions of some member state governments as they question fundamental EU values and principles and refuse to implement common decisions seemingly on the basis of narrowly defined national interests.

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