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This paper examines the recent banking crises in Finland, Norway and Sweden in an attempt to draw some policy conclusions from their experiences. In all three countries, the timing of deregulation coincided with a strongly expansionary macroeconomic momentum. Delayed policy responses, as well as structural characteristics of the financial systems, and banks’ inadequate internal risk management controls were important determinants of the consequences of the transition from tightly regulated to more or less competitive financial systems. In the absence of strengthened prudential banking supervision, these incentives coupled with expectations of government intervention in the event of a crisis prompted many Nordic banks to increase their lending excessively.

Banks and Banking --- Money and Monetary Policy --- Industries: Financial Services --- Finance: General --- Financial Markets and the Macroeconomy --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Financial Institutions and Services: Government Policy and Regulation --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- General Financial Markets: Government Policy and Regulation --- Banking --- Monetary economics --- Finance --- Bank credit --- Commercial banks --- Loans --- Credit --- Money --- Financial institutions --- Distressed assets --- Financial sector policy and analysis --- Banks and banking --- Finland

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This paper estimates a speculative attack model of currency crises in order to identify the role of economic fundamentals and any early warning signals of a potential currency crisis. The data from the Mexican economy was used to illustrate the model. Based on the results, a deterioration in fundamentals appears to have generated high one-step-ahead probabilities for the regime changes during the sample period 1982-1994. Particularly, increases in inflation differentials, appreciations of the real exchange rate, foreign reserve losses, expansionary monetary and fiscal policies, and increases in the share of short-term foreign currency debt appear to have contributed to the market pressures and regime changes in that period.

Foreign Exchange --- Money and Monetary Policy --- History of Thought: Macroeconomics --- International Monetary Arrangements and Institutions --- Monetary Systems --- Standards --- Regimes --- Government and the Monetary System --- Payment Systems --- Currency --- Foreign exchange --- Monetary economics --- Exchange rate arrangements --- Exchange rates --- Crawling peg --- Conventional peg --- Currencies --- Money --- Mexico