Monetary Crises And What Possible Learning Could This Provide For Governments Today?

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4. How have different countries responded to past financial crises and what possible learning could this provide for governments today?
Recession triggered by financial crisis has a tendency to last longer and be more painful than “normal” recessions. Past financial crises have different causes and the influences on different countries are diverse, but analysis of key impacts of them can provide insight into the management of the current crisis. Responses of various countries to past financial crises will be discussed below.

Japan (1992-2002), Sweden (1990-1993), Norway (1988-1993) and Finland (1990-1993) all suffered financial crises and each of them had a remarkable effect on economic performance, despite the varied intensity and
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Japan acted like Nordics, tried to stabilize the banking sectors too. But Japanese focused on writing off bad debts and wrote off trillions of bad loans during 1992 and 2001. Besides, Japan used systematic measures to handle the problems of bad loads and new legislation was introduced to reform deposit insurance (BOE Financial Stability Report, 2009). Chart 2
Chart 2 above concludes the main measures applied to remove bad assets from banks’ balance sheets. From the chart, at the beginning, all four countries depended on capital injection to rescue banks and wiped out shareholders. As the crisis approaching the end, Sweden and Finland applied a good bank/bad bank method to remove bad assets from nationalized banks. But Norway kept bad assets in nationalized banks and managed by themselves. Japan established an asset management firm early in the crisis to deal with bad assets of failed banks and nationalized some banks later (BOE Financial Stability Report, 2009).

Current and past crises may share some similarities, thus it is very useful to analyze past financial samples and compare with the present one. As the world’s economy is linked today, a single country’s financial crisis may develop to a global one. Governments should not only pay attention to their own past crises, but also keep an eye on other major economies. In addition, from the past crises, the management of systematic banking problems is the key to recovering the banking
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