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Document Type

Case Study

Abstract

Following a large-scale deregulation of the financial sector during the 1980s and subsequent massive credit expansion, a banking crisis in Finland caused a sharp contraction in the economy in the early 1990s. To prevent the collapse of the banking system, the government offered FIM 8 billion in capital injections. Parliament appropriated the funds in the spring of 1992 and terms were defined in June 1992. The program was open to all banks, in proportion to their size, regardless of their solvency. In the fall of 1992, FIM 7.9 billion was deployed to 56 cooperative banks and 22 savings banks of which FIM 5.0 billion went to five banks. By January 1996 FIM 6.6 billion had been paid back and by November 1999 FIM 7.9 billion had been paid back with only one institution outstanding.

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