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Document Type

Case Study

Case Series

Broad-based Capital Injections

JEL Codes

G01, G28

Abstract

Privately owned banks had funded the Savings Bank Guarantee Fund (SBGF) and Commercial Bank Guarantee Fund (CBGF) between 1921-1938 to provide guarantees and capital injections to struggling banks. Bank legislation in 1961 made participation in such guarantee funds compulsory for all Norwegian banks, and they were reorganized according to that law. However, after banks began to struggle in the late 1980s, the two funds quickly ran out of resources. The Norwegian Parliament (Storting) created the Government Bank Insurance Fund (GBIF) in March 1991 to loan money to the two funds. They both quickly incurred unsustainable amounts of debt to the government. In November 1991, the Storting gave the GBIF the power to inject capital directly into banks through subordinated debt, common and preferred equity, and primary capital certificates, with the Storting allocating NOK 5 billion ($590 million) in initial funding to the GBIF. At the same time, it established the Government Bank Investment Fund (Norwegian Statens Bankinvesteringsfond, SBIF) to provide liquidity to struggling but solvent banks. From 1991-93, the GBIF and SBIF bought stakes in many banks, including three of the four largest: Fokus Bank, Den norske Bank, and Christiania Bank. In 2002, the GBIF transferred to the SBIF its last shares in Den norske Bank and ceased operating. In 2004, the SBIF transferred to the Norwegian Ministry of Finance and Industry its 34% stake in DnB NOR, the entity that resulted from the merger of Den norske Bank and the Union Bank of Norway, and ceased operating.

Date Revised

2021-12-15

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