Swedbank's Role In Baltic Boom & Bust
When Austrians discuss the issue of financial crises, it is often assumed implicitly that the central bank is always the culprit behind it.
That is true in one sense, namely that the central bank by providing cheap credit to private bankers and in various ways bailing out private bankers who run into trouble, should be considered ultimately responsible for whatever problems caused by these private bankers.
However, while basically true, it doesn't tell the whole story. The ultimate responsibility of central banks doesn't mean that these private bankers shouldn't receive some blame as well. As they take advantage of this set up from the central bank, they act as collaborators in their schemes. That is why one shouldn't feel sorry for them when they run into trouble as a result of that, much less bail them out.
Applying this to the popular subject of Swedbank and its troubles, it is worth noting that in this article in Swedish news paper Svenska Dagbladet, several economists which argue the case that irresponsible loose lending standards from Swedbank and other Swedish banks contributed to the unsustainable boom in these countries which have now turned into a bust. And while the Swedbank representative, Baltic division chief Erkii Raasuke, interviewed in the article is not surprisingly more reluctant than the independent economists interviewed to admit wrongdoing by his bank, he still admits that with hindsight, Swedbank did lend too much during the boom.
While the Baltic peg to the euro may have been a mistake as it forced them to adopt the too loose monetary policies pursued by the ECB at the time, irresponsible lending practices by Swedbank and other Swedish banks was clearly a very important factor as well.
That is true in one sense, namely that the central bank by providing cheap credit to private bankers and in various ways bailing out private bankers who run into trouble, should be considered ultimately responsible for whatever problems caused by these private bankers.
However, while basically true, it doesn't tell the whole story. The ultimate responsibility of central banks doesn't mean that these private bankers shouldn't receive some blame as well. As they take advantage of this set up from the central bank, they act as collaborators in their schemes. That is why one shouldn't feel sorry for them when they run into trouble as a result of that, much less bail them out.
Applying this to the popular subject of Swedbank and its troubles, it is worth noting that in this article in Swedish news paper Svenska Dagbladet, several economists which argue the case that irresponsible loose lending standards from Swedbank and other Swedish banks contributed to the unsustainable boom in these countries which have now turned into a bust. And while the Swedbank representative, Baltic division chief Erkii Raasuke, interviewed in the article is not surprisingly more reluctant than the independent economists interviewed to admit wrongdoing by his bank, he still admits that with hindsight, Swedbank did lend too much during the boom.
While the Baltic peg to the euro may have been a mistake as it forced them to adopt the too loose monetary policies pursued by the ECB at the time, irresponsible lending practices by Swedbank and other Swedish banks was clearly a very important factor as well.
posted by stefankarlsson at 10:28 PM
2 Comments:
As a Latvian citizen I can fully agree that mainly the loose lending standards created the high price boom in Latvian market (3-5% price increase per month!) as especially Swedbank in Latvia were lending so called 105 or 110% (dont remember correctly) motgage loans (for the house/apartment and for renovation) without a cofinancing from customer and based on income the customer declares he/she receives (the customer did not have to prove legal income at that time). So, basically everyone who wanted was able to receive mortgage loan.
Central bank of Latvia raised its refinancing rate from 4 to 4,5% in July 15 2006 and later three more times to 6% in May 18, 2007 in some way to stop the boom, but combined with deficit budget from Latvian goverment and nice inflow of ERDF and CF funds that did no help.
Actually Swedbank cant be the One who is responsible for all problems, in this situation there could be any other bank, for example, Nordea and all those other banks who gave and still are giving mortgage loans.
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