The Deregulation Of The Domestic Credit Market

1850 Words8 Pages
companies, and others now entered an environment where they could compete freely on the domestic credit market. The deregulation quickly made its impact, as lending increasing by a massive 136 percent (73 percent in real terms), and institutions previously hit directly by the regulations were now free to expand, and they did. Between 1986 and 1990, banks expanded by 174 percent and mortgage institutions by 167 percent. However, finance and insurance companies went from thriving under the regulations to losing market shares rapidly, and the finance companies that originally were involved in – and benefitted – from activities such as leasing, factoring, and credit cards into direct lending under the regulation, now lost the superior amount of freedom that they had over banks. With banks entering the market, the finance companies was pushed into higher-risk markets, and since they no longer were able to receive deposits nor to issue bonds, they now had to be financed by direct borrowing in banks or by issuing what Englund refers to as marknadsbevis. Marknadsbevis can be likened to non-callable bonds and were normally guaranteed by banks, which indirectly exposed the banks to extra credit risk (Eklund, “The Swedish Banking Crisis”). Although, it should be noted that Sweden – who between 1985 and 1990 had a current account deficit-to-GDP ratio of 1.1 percent – experienced less overheating than Finland – who had a corresponding figure of 2.9 percent – during the latter part of the
Open Document