THE BANKING CRISIS IN FINLAND

The article presents some of the most important features of the Finnis h banking crisis of the early 1990s. The familiar list of causes inclu des exogenous economic shocks, the unforeseen impact of financial dere gulation, unsound credit and investment policies in the banking and en terprise sectors, and economic and prudential policies unsuited to the emerging situation. Policy was constrained by the need to avoid a los s of confidence in the banking system. A liquidity crisis was successf ully averted by having taxpayers take over the main part of the very s ubstantial, though still partly unrealized costs. Among the lessons to be drawn in retrospect are the need for: early supervisory action, av oidance of repeat capitalizations, strict timetables for recovery prog rams, and limits to political involvment in the process. Furthermore, market discipline is unlikly to be a sufficient alternative to officia l supervison in small economies. IN ENGLISH.