US calls on Sweden's "Mr Fix It" Bo Lundgren
The Swedish financial chief known as "Mr Fix It" has been summoned to Washington to advise on how Sweden's model might avert a global banking meltdown.
By Henry Samuel in Stockholm
Last Updated: 11:11AM GMT 20 Mar 2009
US turns to "Mr Fix It" Bo Lundgren, the steely-eyed head of Sweden's National Debt office, played a leading role in averting the collapse of the Swedish banking sector when a property bubble burst in the early 1990s.
Sitting in his office in downtown Stockholm before his trip to Washington, Mr Lundgren chuckled at the Wall Street joke that "Swedish models used to only attract attention if they were blonde and leggy".
Now, US President Barack Obama cites Sweden as a possible model of how best to tackle failing banks. Mr Lundgren, who was fiscal and financial affairs minister at the time of the last crisis, yesterday outlined the Swedish solution to the Congressional Oversight Panel, which supervises the US administration's troubled asset relief programme.
"I am a market liberal. I was even called the nearest Sweden had every come to having a party one could call libertarian," said Mr Lundgren, the former head of the Moderate Party with links to the Conservatives.
This did not stop him nationalising two failing major banks in 1992: the already majority state-owned Nordbanken, and the privately owned Gota bank.
"In the case of a crisis, the state needs to be strong," he said. "If it decides to act, it should become an owner."
After initial hesitation, when the Swedes chose to act they soon reached a broad political consensus.
The first, and in his eyes crucial step Mr Lundgren took was to restore liquidity by issuing a so-called "blanket guarantee" for all non-equity claims on Swedish banks.
This was vital to restore confidence, he said, and is something that has not been done in the US and UK.
It was also crucial not to put a figure on the guarantee, according to Stefan Ingves, the governor of the Riksbank, Sweden's central bank. Mr Ingves was a finance ministry official in the early 1990s and led the Bank Support Authority, created to resolve the crisis.
"If you pick a very low figure, people will say: 'That's not credible, we think the problem's bigger than that.' If you pick a very high figure, then people say: 'Oh gosh, is it that big a problem?'," he said.
The government did not extend its credit guarantee to shareholders of the nationalised banks, who were wiped out.
In the UK, the Royal Bank of Scotland has refused to go this far, but the Swedes insist this acts as a wake-up call to shareholders of troubled but still solvent banks to shape up or ship out. This decision spurred two private banks to raise private capital.
A "stress test" was worked out to determine how bad the problems were in each bank for the coming three years.
Banks were then ranked as healthy or as candidates for nationalisation, and those in between were told to clean up their act or face being taken over by the state.
Next, the toxic assets of the nationalised banks were ring-fenced into two separate bad banks and run by independent asset-management companies. The good assets were placed in a single, merged bank.
As central banks and supervisors "don't do corporate restructuring", the Swedish authorities decided to bring in investment bankers from the private sector to run the corporate finance side of the bad banks' assets. "Huge numbers" of bankers and auditors were flown in from London to do the "daily running of these businesses," said Mr Ingves.
Private banks were also urged to place their non-performing loans in separate bad banks. However, unlike what has been mooted in the US, there was never any question of the authorities buying bad assets from banks that remained in any way privatised. "We refused to do that because we could never agree on the price. If you pay too much it's a giveaway to the shareholders. If you pay very little then the transaction simply won't happen," said Mr Ingves.
Despite calling it a "political value judgment", it is clear he disapproves of countries such as Britain and the US who have committed huge sums to insure bad assets of private or part-private banks.
Once split, the two Swedish bad banks managed to liquidate their assets by 1997 and the state recouped at least half the funds it had made available.
While the process worked back then, the two Swedes recognised that the 1990s crisis, essentially home-grown and involving half a dozen national banks, was very different from the current global meltdown, involving far more banks and complex "packaged and repackaged" assets. Still, the solution remains the same, said Mr Ingves, even if far more co-ordination is today required.
"Clearly, one of the lessons that comes out of all this is that in Europe, the financial integration between countries ran way ahead of the EU's willingness to have a regulatory framework following at the same pace," said Mr Ingves.
The Swedes also expressed concern that other countries' handling of this crisis was still too piecemeal.
"In the US, certainly early on, there was no consistent policy over capital injection and bad assets. Now it's better but there are still too many loose ends," he said.
"To restore confidence you have to show exactly how big the problems are and how you are going to take care of that."
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/5019186/US-calls-on-Mr-Fix-It.html
The Swedish financial chief known as "Mr Fix It" has been summoned to Washington to advise on how Sweden's model might avert a global banking meltdown.
By Henry Samuel in Stockholm
Last Updated: 11:11AM GMT 20 Mar 2009
US turns to "Mr Fix It" Bo Lundgren, the steely-eyed head of Sweden's National Debt office, played a leading role in averting the collapse of the Swedish banking sector when a property bubble burst in the early 1990s.
Sitting in his office in downtown Stockholm before his trip to Washington, Mr Lundgren chuckled at the Wall Street joke that "Swedish models used to only attract attention if they were blonde and leggy".
Now, US President Barack Obama cites Sweden as a possible model of how best to tackle failing banks. Mr Lundgren, who was fiscal and financial affairs minister at the time of the last crisis, yesterday outlined the Swedish solution to the Congressional Oversight Panel, which supervises the US administration's troubled asset relief programme.
"I am a market liberal. I was even called the nearest Sweden had every come to having a party one could call libertarian," said Mr Lundgren, the former head of the Moderate Party with links to the Conservatives.
This did not stop him nationalising two failing major banks in 1992: the already majority state-owned Nordbanken, and the privately owned Gota bank.
"In the case of a crisis, the state needs to be strong," he said. "If it decides to act, it should become an owner."
After initial hesitation, when the Swedes chose to act they soon reached a broad political consensus.
The first, and in his eyes crucial step Mr Lundgren took was to restore liquidity by issuing a so-called "blanket guarantee" for all non-equity claims on Swedish banks.
This was vital to restore confidence, he said, and is something that has not been done in the US and UK.
It was also crucial not to put a figure on the guarantee, according to Stefan Ingves, the governor of the Riksbank, Sweden's central bank. Mr Ingves was a finance ministry official in the early 1990s and led the Bank Support Authority, created to resolve the crisis.
"If you pick a very low figure, people will say: 'That's not credible, we think the problem's bigger than that.' If you pick a very high figure, then people say: 'Oh gosh, is it that big a problem?'," he said.
The government did not extend its credit guarantee to shareholders of the nationalised banks, who were wiped out.
In the UK, the Royal Bank of Scotland has refused to go this far, but the Swedes insist this acts as a wake-up call to shareholders of troubled but still solvent banks to shape up or ship out. This decision spurred two private banks to raise private capital.
A "stress test" was worked out to determine how bad the problems were in each bank for the coming three years.
Banks were then ranked as healthy or as candidates for nationalisation, and those in between were told to clean up their act or face being taken over by the state.
Next, the toxic assets of the nationalised banks were ring-fenced into two separate bad banks and run by independent asset-management companies. The good assets were placed in a single, merged bank.
As central banks and supervisors "don't do corporate restructuring", the Swedish authorities decided to bring in investment bankers from the private sector to run the corporate finance side of the bad banks' assets. "Huge numbers" of bankers and auditors were flown in from London to do the "daily running of these businesses," said Mr Ingves.
Private banks were also urged to place their non-performing loans in separate bad banks. However, unlike what has been mooted in the US, there was never any question of the authorities buying bad assets from banks that remained in any way privatised. "We refused to do that because we could never agree on the price. If you pay too much it's a giveaway to the shareholders. If you pay very little then the transaction simply won't happen," said Mr Ingves.
Despite calling it a "political value judgment", it is clear he disapproves of countries such as Britain and the US who have committed huge sums to insure bad assets of private or part-private banks.
Once split, the two Swedish bad banks managed to liquidate their assets by 1997 and the state recouped at least half the funds it had made available.
While the process worked back then, the two Swedes recognised that the 1990s crisis, essentially home-grown and involving half a dozen national banks, was very different from the current global meltdown, involving far more banks and complex "packaged and repackaged" assets. Still, the solution remains the same, said Mr Ingves, even if far more co-ordination is today required.
"Clearly, one of the lessons that comes out of all this is that in Europe, the financial integration between countries ran way ahead of the EU's willingness to have a regulatory framework following at the same pace," said Mr Ingves.
The Swedes also expressed concern that other countries' handling of this crisis was still too piecemeal.
"In the US, certainly early on, there was no consistent policy over capital injection and bad assets. Now it's better but there are still too many loose ends," he said.
"To restore confidence you have to show exactly how big the problems are and how you are going to take care of that."
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/5019186/US-calls-on-Mr-Fix-It.html
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