Norway – GBIF/SBIF (Nordic Crisis 1991) · 2020. 3. 17. · 1Research Associate, Yale Program on...

PRELIMINARYYPFSDISCUSSIONDRAFT|MARCH2020

Norway–GBIF/SBIF(NordicCrisis1991)PriyaSankar1

March6,2020

Abstract

Prior to the Nordic financial crisis of the late 1980s and early 1990s, the Norwegiangovernment did not have a preexistent financial safety net. The private Savings BankGuaranteeFund(SBGF)andCommercialBankGuaranteeFund(CBGF)providedguaranteesandcapitalinjectionstostrugglingbanksintheirsector,butby1991,theseactionsdepetedtheirresources.TheNorwegianParliament(Storting)createdtheGBIF(GovernmentBankInsuranceFund)inMarch1991toloanmoneytothesetwofunds,butbyNovemberof1991,theyhadincurredanunsustainableamountofdebtandtheStortinggavetheGBIFthepowertomakedirectcapitalinjectionsthroughsubordinateddebt,commonandpreferredequity,andprimarycapitalcertificates.Atthesametime,itestablishedtheSBIF(GovernmentBankInvestmentFund)toprovideliquiditytostrugglingbutsolventbanks.From1991-1993,theGBIFandSBIFrecapitalizedmanybanks,includingthethreemajorbanks:FokusBank,DenNorskeBank,andChristianiaBank.TheGBIFhadsoldallitssharesinallbanksexceptDenNorskeby2002,whenitssharesweretransferredtotheSBIF,andtheGBIFwasretired.By2004,theSBIFowned34%ofDnBNOR,theentitythatresultedfromamergerofDenNorskebankandtheUnionBankofNorway,andthesesharesweretransferredtotheNorwegianMinistryofFinanceandIndustryandtheSBIFwasretired.

Keywords:GBIF,SBIF,CBGF,SBGF,Norway,NordicFinancialCrisis,CapitalInjections

1ResearchAssociate,YaleProgramonFinancialStability([email protected])


GBIF/SBIF:NorwayContext

GDP

119,700,000,000USD1991

IMFInternationalFinancialStatistics

GDPpercapita

$45858in1991

IMFInternationalFinancialStatistics

Sovereigncreditrating(LocalCurrencyLong-TermDebtRating)

Notavailable

ExchangeRate(toUSD) 6.49NOKtoUSD WorldBankGlobalFinancialDevelopmentDatabase

Sizeofbankingsystem

Notavailable

SizeofbankingsystemasapercentageofGDP

1991Bankdepositsare52.6%ofGDP

WorldBankGlobalFinancialDevelopmentDatabase

Sizeofbankingsystemasapercentageoffinancialsystem

Notavailable

5-bankconcentrationofbankingsystem

5bankassetconcentrationof12.8%in1998



Foreigninvolvementinbankingsystem5%in1995


Governmentownershipofbankingsystem

32%in1995


Existenceofdepositinsurance

Notavailable


AtaGlance

TheNorwegianbankingcrisisoftheearly1990swasdueinparttofinancialderegulationandadropinoilprices,weakeningexposedbanks(Ongena,Section2).Thebankingindustryaddressedthecrisisthroughtheuseof theirownself-fundedSavingsBankGuaranteeFund (SBGF) and the Commercial Bank GuaranteeFund (CBGF), but they quickly ran out of money, soNorway established the Government Bank InsuranceFund (GBIF) to make loans to the two private bankguaranteefunds.ThetwofundsusedtheloanstomakecapitalinjectionsandguaranteestovariousNorwegianbanks,buttheirdebtburdensmountedandtheycouldnotmeettheneedforcapital.

In later1991, theNorwegianparliamentallowed theGBIF to make direct capital injections to distressedbanks and established the Government BankInvestmentFund(SBIF)tomaintainstateownershipofbanksinthelongerterm(Ongena,Section2).TheNorwegianparliament(Storting)allocatedNOK13.5billiontotheGBIF(Moep.203).TheGBIFmade17capitalinjectionstotalingNOK16.2billionintheyears1991-1993(Moep.203).ItloanedNOK554milliontotheSBGFtoinjectintosavingsbanks,andinjectedNOK15.6billiontocommercialbanks,ofwhichNOK2.5billionwasloanedtotheCBGFtomakeitsowninjections.TheseinjectionswereprimarilydirectedatNorway’sthreelargestbanks: Fokus Bank, Christiania Bank, and Den Norske bank. Other support measures from theNorwegiangovernmentincludedaNOK1billionallocationtotheSBGF,andsubsidizedcentralbankdeposits,whichtotaledaboutNOK2.7billion(Moep.205).

After1993,nomoreinjectionswererequiredandtheGBIFslowlybegansellingsharesandreceivingloanrepaymentsuntil2002,whenittransferreditsremainingholdingstotheSBIFandsubsequentlyclosed.TheSBIFtransferreditsholdingofDenNorskebank(nowDnBNOR)totheMinistryofTradeandFinancebeforedissolvingin2004(Moep.201-203).

SummaryEvaluation

Thegovernment’suseofcapitalinjectionsthroughtheGBIFandSBIFisgenerallyseenasasuccessthat reduced the cost of the crisis and created normal conditions for borrowers (Bergo-A). Itpreventedthespreadofsystemicfinancialproblemsandbankfailure.However,thereweresomeconcernsaboutthegovernment’sroleasbotharegulatorandashareholder(Bergo-B).Inaddition,thegovernment’sunilateraldecisiontowritedownthesharesofFokusBankandChristianiaBankhasreceivedsomecriticism(Moep.218-220).

SummaryofKeyTerms

Purpose: Description of intent ofintervention.

Announcement

DateJanuary25,1991

OperationalDate March15,1991EndofIssuance

WindowN/A

LegalAuthority ActonGovernmentBankInsurance

FundJanuary1991PeakUtilization NOK16.2billion

Participants FokusBank,ChristianiaBank,DenNorskeBank,

othersAdministrators King,NorgesBank,

BankingInsuranceandSecuritiesCommission

Norway – GBIF/SBIF (Nordic Crisis 1991)


ContentsI. Overview...........................................................................................................................................6

Background ............................................................................................................................. 6Program Description ............................................................................................................... 7Outcomes ................................................................................................................................ 8

II. KeyDesignDecisions.................................................................................................................111. The GBIF was not part of a package, but it was implemented alongside several other policies to address the financial crisis and worked in tandem with the Government Bank Investment Fund (SBIF) to make capital injections. ................................................................ 112. The Norwegian Parliament established GBIF was a temporary facility to combat the financial crisis by providing loans to private bank guarantee funds. Later, it established the SBIF as a more permanent facility to manage government ownership in individual banks, and allowed the GBIF to make direct capital injections (Act on State Bank Guarantee Fund, Act on State Bank Investment Fund) .................................................................................................... 12

The Relationship Between the GBIF and the SBIF .............................................................. 123. The GBIF was governed by a board appointed by Norges Bank and the Norwegian King. 134. The GBIF was initially funded with NOK 5 billion in January 1991, appropriated by the Norwegian Storting, which later increased the GBIF’s funding by NOK 6 billion and funded SBIF with NOK 4.5 billion in November 1991 ........................................................................ 135. The CBGF and SBGF made capital injections primarily with the GBIF’s support after 1991, but maintained guarantees in many affected banks. ....................................................... 146. The GBIF and SBIF made indirect and direct capital injections, mostly in the form of preferred shares, but also made convertible loans. ................................................................... 197. The GBIF injected capital into Oslobanken in 1993 for the purpose of liquidating it. .... 218. Private shareholders always bore losses before GBIF capital could be exposed. ............ 229. The GBIF claimed board seats on each of the two private bank guarantee funds, and generally replaced the management of recapitalized banks. ..................................................... 2210. The GBIF injections were contingent on a number of conditions including the write down of old capital to cover bank losses and a reduction in operating costs. .......................... 2211. The GBIF sold its shares in the open market and to the SBIF before closing in 2002; the SBIF transferred loan repayments to the Treasury and transferred its stake of DnB NOR to the Ministry of Trade and Industry in 2004 before closing. ..................................................... 23

III.Evaluation......................................................................................................................................25IV.References.....................................................................................................................................26V. KeyProgramDocuments..........................................................................................................28

Summary of Program ............................................................................................................ 28


Legal/Regulatory Guidance .................................................................................................. 28Reports/Assessments............................................................................................................. 28

VI.Appendix........................................................................................................................................29Appendix I: Den Norske Bank .................................................................................................. 29Appendix II: Christiania Bank .................................................................................................. 30Appendix III: Fokus Bank ........................................................................................................ 31Appendix IV: Oslobanken ........................................................................................................ 31Appendix V: Sparebanken NOR ............................................................................................... 32Appendix VI: Timeline of Major Events .................................................................................. 32

I. Overview

Background

Norway’sfinancialderegulationinthe1980signitedacreditexpansion(Ongena,Section2).The concurrentdrop inoil prices led to a fall in asset value, andmanyweak firmswentbankrupt.Thisexposedthebanksthatweretiedtothem,andreducedbanklendingthroughtheeconomy.TheNorwegianbankingcrisisbeganin1988,withSunnmørsbankendeclaringinsolvency(Ongena,Section2).Priortothis,noNorwegianbankhadfailedsince1923,andtheNorwegiangovernmenthadtakena“handsoff”approachtoinsuringdepositorsagainstfailure(Ongena,Section2).Bankrepresentativesalsopreferredan internalrescueof thebanking system to government interference. In the next four years, 13 banks thatrepresented95%ofthetotalcommercialbankassetsinNorwaystruggledgreatlyorfailed(Ongena,Section2).Norway’sgovernmenthadnocapitalsupportordepositinsuranceprogramswhenthecrisishit (Ongena, Section 2). However, the banking industry had its own deposit insuranceprograms,theCommercialBankGuaranteeFund(CBGF)andtheSavingsBankGuaranteeFund (SBGF). However, these guarantee funds had a wider mandate; they were free torecapitalizeabankorprovideguaranteesandfinancialsupporttofacilitateatakeoverifitwasamorecost-effectiveoptionthanliquidatingafailedbankandpayingoutthedepositors(Bergo-Ap.2).Membershipwascompulsoryandby1988,membershipfeeshadgiventheCBGFNOK4.1billionofcapital(2.4%ofmemberbanks’depositsfromnonbanks)andtheSBGFhadNOK1.4billionof capital,withmemberbanksguaranteeingNOK1.6billionofcapital(Moe,p.184).TheguaranteeswereincreasedbyNOK700millionin1989.BothfundshadtheBanking,InsuranceandSecuritiesCommission(BISC)andNorgesBankrepresentedontheirboards,alongwithfivememberseachelectedbytheirrespectivememberbanks(Moe,p.184).TheCBGFinjected$65million(NOK1.3billion)intoimpairedbanks,andfacilitatedtheirmergerswith healthier banks. These capital injections appeared to stabilize the banking


industryasofspring1990(Ongena,Section2).Bytheendof1990,boththeCBGFandSBGFwereeffectivelydepleted,andcouldnolongerinsuredeposits(Moe,p.6).However, by January 1991, global financial weakness and Nordic economic downturnscausedNorway’s three largestcommercialbankstoannounce losses(Ongena,Section2).Fundspreviouslyavailablethroughinternationalmarketswerenolongeravailable,orwereprohibitivelyexpensive.RecapitalizingFokusbank,Norway’sthirdlargestcommercialbank,depletednearlyallofCBGF’sremainingcapitalbyFebruary1991.Thebankingsystemwasindangerofcollapsingwithoutfurtheraid.Atthepeakofthecrisisin1991,bankloanlossesequaled2.8%ofGDP,while9%ofoutstandingloanswerenon-performing(Bergo-A).ProgramDescription

BeforetheGBIF,thebanksafetynetinNorwayconsistedonlyoftheCBGFandSBGF,aswellasNorgesBankasalenderoflastresort(Moe,p.181).OnMarch5,1991,theNorwegianParliament established the Government Bank Insurance Fund (GBIF), allocating NOK 5billiontofundit(Ongena,Section2).TheNorwegianParliament(Storting)gavetheGBIFaspecific mandate: to lend public money to the CBGF and SBGF that enabled them torecapitalizefailingbanks(Bergo-Ap.2).TheCBGFusedtheborrowedfundstocompletethebailout of Fokus Bank, and began injections into Christiania Bank (Ongena, Section 2).Shortlythereafter,DenNorskebank,thelargestNorwegiancommercialbank,announceditsneedforcapitalinjectionstokeepoperating.ItbecameclearthattheGBIFanditsfundingwasnotsufficienttorecapitalizethethreebiggestNorwegianbanks.ThoughtheGBIFinitiallyloanedmoneytothetwoprivatebankdepositguaranteefunds,bylate1991,theyborrowedasmuchastheycouldwithoutfailingthemselves(Milne101).Attheendofsixmonthsofdebate, theNorwegiangovernmentmadea fewkeydecisions inNovember1991.TheNorwegianParliament extended themandateof theGBIF, allowingthemtoprovideTier1capitalinjectionstodistressedbanks(Dreesp.27).ItalsorespondedtotheworseningcrisisbyaddingNOK6billiontotheGBIF,establishinganewGovernmentBankInvestmentFund(SBIF)withaninitial4.5billionNOK,andforcingeachbanktowritedownitsequity(Ongena,Section2,Dreesp.27).TheGBIF’scapitalwasregardedasfiscalexpenditures,notinvestments(Bergo-B).WhiletheGBIFwasinitiallyestablishedasashort-termfacility,theSBIFwasdevelopedtomanagestateinvestmentinthebankingsectoroverthelongterm(Dreesp.27).TheSBIFcouldmakeitsinvestmentdecisionswithacommercial-longtermperspective(Munthep.21).Banks thatwerenot incrisishad troubleraisingcapitaldue to lackofconfidence inbanks,sotheSBIFwastoparticipatealongsideprivateinvestorstopurchasebanks’issuesofcapital instruments (Moep.194).After thecrisis, in1995, theGBIFbecamemoreofacontingencybody,thoughitwasstillanownerofNorwegianbankshares(Moep.200).TheSBIFpurchasedtheGBIF’sownershipstakesanddisposedofassetsotherthansharesinDenNorske Bank and Christiania bank. The SBIF subsequently became a vehicle to managegovernmentownershipinbanksandtoensurenationalownershipinthetwolargeststatebanks.


Outcomes

BeforetheGBIFmadecapitalinjections,effortsweremadetoattractprivateinvestorsintheweakbanks(Bergo-A).Theseeffortsfailedandthegovernmentbecamethe“owneroflastresort.”Norwayalsochosenottocreateabadbank,astheratioofnonperformingloansatbankswasnotextremelyhigh,andtheywishedtolimittheexposureoftaxpayermoneytobanklosses.TheGBIFdecidedtomakecapitalinjectionsthroughpreferredshares,commonshares,subordinateddebtandprimarycapitalcertificates(equityinstrumentsforsavingsbanks)(Moep.204).Inlate1991,theGBIFcompletelytookoverFokusandChristianiabanks,andcontrolledDennorske bank, of which it owned 55% (Ongena, Section 2). The Norwegian governmentcontinues to hold the majority stake in Den norske bank as of 2003. In 1992, 54% ofNorwegian bank assets were under GBIF control, as it owned three of the four largestNorwegianbanks(Dennorske,Christiania,andFokus),wipingoutallprivateshareholderequity(Milne101).AtpeakutilizationoftheGBIFandSBIFprovisions,Norwayownedcloseto60%ofitsbankingsector(Bergo-A).ThediscountedvalueofNorwegiancrisisresolutiongross fiscal costs was about 2.9% of Norway’s 1993 GDP. Adjusting for the value ofgovernment-ownedbankshares,thenetfiscalcostswereapproximately0.8%ofGDP.Thisincluded funding for theGBIF’s capital injectionmechanism, guarantees providedby theGBIFandSBIF,andfundingallocationsmadetotheCBGFandSBGF(Dreesp.27).Norwegiantaxpayersactuallymadeaprofitoffof thenationalizedbanksafter theywerereprivatized;whilethegrossfiscalcostofbanksupportwasequivalentto3.4%ofNorway’sGDP2,thenetcostwas-0.4%(Milne101-102).Thesharepricesofthebanksincreasedwhiletheywereundergovernmentcontrol(Honkapohja-Ap.23).By2003,theonlystateownershipofNorwegianbanksremainingwastheSBIF’s47.8%stakeinDennorskebank,whichwassubsequentlymergedwithUnionBankofNorway,creatingDnBNOR(Moep.180).AsaresultSBIF’sstakeinthemergedbankwasreducedto28.1%.However,theparliamentdecidedtoincreasethegovernment’sshareholdingto34%throughpurchasesinthemarketin2004(Moep.203).Thiswastomaintainstateownershipofthenewentityandtopreventitssaletoforeignentities,keepingitsmanagementintheNordicregion(StortingDnB).TheSBIFwassubsequentlydissolvedin2004,anditsholdinginDnBNORwastobetransferredtotheMinistryofTradeandIndustry,whichhandlesmostofthegovernmentownershipincorporations.Duringthecrisis,theSBGFhadpurchasedprimarycapitalcertificatesinthreesavingsbankswithitsownfundsandGBIFloans(Moep.198).Inspring1994,itsoldtheseaboveparandrepaiditsGBIFdebtwithNOK2billionoutstanding,eliminatingallobligationsthesavingsbanksectorhadtotheGBIF.

2AsapresentvaluepercentageofNorway’s2001GDP.


Source:Moep.206


Source:Moep.202

Source:Moep.248


Intotal,thegovernmentsupportamountedtoaboutNOK20.7billion,approximately3%ofthebankingsectorassetsin1990(Moep.205).TheCBGFdisbursedapproximatelyNOK4.7billionofitsownassetswhiletheSBGFdisbursedaboutNOK3.2billion.TheGBIFinjectedNOK16.2billionin17injections;NOK554milliontotheSBGFinloans,NOK2.5billiontotheCBGF in loans,andNOK13.1billion indirect injections tocommercialbanks(Moep.203).

II. KeyDesignDecisions

1. TheGBIFwas not part of a package, but itwas implemented alongside severalother policies to address the financial crisis and worked in tandem with theGovernmentBankInvestmentFund(SBIF)tomakecapitalinjections.

The GBIFwas not explicitly part of a package, although the Norwegian government didpursueotherpoliciestoaddressthefinancialcrisis(Moep.7).TheseincludedloansfromNorges Bank at below-market interest rates, which amounted to about 10% of banks’fundinginlate1991,aStortinggranttotheSavingsBankGuaranteeFund(SBGF),anda75%reductionofbanks’annualpremiumstotheirrespectiveguaranteefund.In late 1991,when it became clear that the twoprivate bank guarantee funds couldnotsustainthedebttheyowedtotheGBIF,theNorwegianParliamentredesignedthesystemicrisk infrastructure (Moe p. 194). This included an expansion of the GBIF, aswell as theestablishment of the SBIF, subsidized deposits from Norges Bank, reduced premiumpaymentsfromthetwobankguaranteefunds,anappropriationofNOK1billiontotheSBGF,andreducedliquidityrequirementsforbanks.Mostimportantly,itallowedtheGBIFtomakedirectcapitalinjectionsratherthanjustloanstothetwoprivatebankguaranteefunds.TheGBIFwasestablishedasashorttermfacilitytomanagegovernmentownershipinbanks,whiletheSBIFwasestablishedtomanagelong-termstateinvestmentinthebankingsectoroncommercialprinciples,ratherthanpurelyforfinancialstabilitypurposes(Dreesp.27,Munthep.21).TheSBIFworkedwithprivateinvestorstoprovidecapitaltobanksthatwerenot incrisis tohelpovercomethecrisisofconfidence(Moep.194).After1995, theGBIFbecamemoreofacontingencybodyandtheSBIFmanagedstateownershipinthebankingindustry.


2. TheNorwegianParliamentestablishedGBIFwasa temporary facility tocombatthe financialcrisisbyproviding loans toprivatebankguarantee funds.Later, itestablished the SBIF as a more permanent facility to manage governmentownership in individual banks, and allowed the GBIF to make direct capitalinjections(ActonStateBankGuaranteeFund,ActonStateBankInvestmentFund)

TheGBIFwasatemporaryfacilitythatwasintendedtoprovideloanstotheCommercialandSavingsBankGuaranteeFunds,thatinturncouldcapitalizedistressedbanks(Dreesp.27).TheNorwegiangovernmentplannedtowindtheGBIFdownby2000,andtransferthesharesitheldtotheSBIF.TheSBIFwasestablishedasanindefinitefacilitytomanagelong-termstate investment in banks. TheNorwegian used the SBIF’s 1/3 interest inNorway’s twolargestcommercialbankstoensurethattheyfocusedonfinancingNorwegianindustriesandthattheywouldnotlendimprudently.TheNorwegianparliamentorStortinginitiallyproposedestablishingtheGBIFonJanuary25,1991,thoughitwasestablishedonMarch15,1991toprovidesupportloanstothetwoprivatebankguaranteefunds(Moep.187).TheexpansionoftheGBIFthatallowedittomakedirectcapital injectionshappenedonNovember29,1991(Moep.194).Thisallowed theGBIFtopurchaseshares,primarycapitalcertificates3orotherequitycapitalinstrumentsinNorwegianbanksthatcouldnotraiseprivatecapital.ThismechanismwouldresultinGBIF’sownershipofbanksthathadlostalltheircapital.TheGovernmentBankInvestmentFund(SBIF)wasestablishedinNovember1991withNOK4.5billion(Dreesp.27).TheSBIFwasintendedtomakecapitalinjectionsoncommercialprinciplesandhelpbanksthatwerenotincrisisraisecapitalwhentherewasagenerallackofconfidenceinthemarkets(Moep.194).Itwasdesignedtoparticipatealongsideprivateinvestorsinbankcapitalinstruments.Duringthesametime,Norwaymadeamendmentstothe Community Banking Act that allowed the King in Council towrite down bank sharecapitaltozero,preventingthegovernmentfromtakingoverriskthatshareholdersbear.

TheRelationshipBetweentheGBIFandtheSBIF

Initially in1991,whentheSBIFwasestablishedandtheGBIFwasgrantedpermissiontomakecapitalinjections,itwasnotclearwhattherelationshipbetweenthetwoinstitutionswouldbe(Moep.199).A1992documentmaintainedthattheGBIF’sequityholdingswereinserviceofcrisismanagementwhiletheSBIF’sholdingswereinaninvestorrolealongsideprivate owners. TheGBIFprovided capital support to struggling banksduring the crisis,makingsure to imposerequirements includingcostcuttingandbalancesheet reductionsthat helped maintain stability. The GBIF’s purchases of shares and primary capitalcertificates granted it varying degrees of ownership in different banks, but it generallyavoided directly intervening in bank operations, preferring to exert influence as acontractingparty.

3Aprimarycapitalcertificatewastheequityinstrumentofsavingsbanks.Certificateholdershadsomewhatlimitedrightscomparedtoshareholdersofcommercialbanks.


3. TheGBIFwasgovernedbyaboardappointedbyNorgesBankandtheNorwegianKing.

TheGBIFwasgovernedbyaboardofexpertsthatmadeitsdecisions,carryingoutoperationsatadistancefrompoliticalauthorities(Bergo-A).Thethree-memberboardwasappointedbytheKingandsupplementedbyonenon-votingrepresentativefromNorgesBankandonefromtheBISC(Banking,Insurance,andSecuritiesCommission),withasecretariatprovidedbyNorgesBank(Moep.187,ActonStateBankGuaranteeFund).However,itmaintainedacloserelationshipwithNorwegianfinancialsupervisorsandNorgesBank,thelatterofwhichalsoplayedaroleinNorway’sfinancialstabilityinfrastructure(Bergo-A).NorgesBankwasthelenderoflastresortforrecapitalizedbank,andasourceofliquiditysupporttosoundfinancialinstitutions,thoughbanksdidnothavetoresorttoitsprovisionsastheygenerallykepttheirfunding.4. TheGBIFwasinitiallyfundedwithNOK5billioninJanuary1991,appropriatedby

theNorwegianStorting,whichlaterincreasedtheGBIF’sfundingbyNOK6billionandfundedSBIFwithNOK4.5billioninNovember1991

TheGBIFwasinitiallyfundedwith5billionNOK,laterincreasedwithanadditional6billionNOK in November 1991, when a government policy allowed it to make direct capitalinjectionstobanks(Andersen;Dreesp.27).TheSBIFwasfundedby4.5NOKtoinvestinbanksalongsideprivateinvestors,eventuallydisposingofitsshares.


5. TheCBGFandSBGFmadecapitalinjectionsprimarilywiththeGBIF’ssupportafter1991,butmaintainedguaranteesinmanyaffectedbanks.

Source:Moep.242


Source:Moep.188-192


6. TheGBIFandSBIFmadeindirectanddirectcapitalinjections,mostlyintheformofpreferredshares,butalsomadeconvertibleloans.

GBIF

Inearly1991,ChristianiaBankandFokusBankbothappliedforcapitalinjectionsfromtheCBGF(Moep.193).TheCBGFhaddepletedfunds,soinAugust1991theGBIFloanednearlyhalfitsfundingtotheCBGFtofinancecapitalinjectionsofNOK1.8billionofpreferredsharesinChristianiaBankandNOK650millionofpreferredsharesinFokusBank(Kaenp.88;Moep.193).InOctober1991,theGBIFprovidedtwoloansofNOK160milliontotheSBGFtorecapitalize Sparebanken Rogaland and Sparebanken Midt-Norge (Moe p. 193). Thesecapitalinjectionswereintendedtobringtherecapitalizedbankstocapitaladequacybytheendoftheyear(Moep.194).InQ3of1991,ChristianiaBankhadlostallcommonandpreferredequitycapital,ofwhichNOK2.7billionhadbeeninjectedbytheCBGF(Moep.195).FokusBankhadlostallcommonequityandsomepreferredequity,whileDenNorskeBankhadonlyNOK327millionofsharecapitalandallitspreferredequity.TheGBIFsignedagreementstoprovideallthreebankscapitalinjections,andhelpedDenNorskeandChristianiabanksachievean8%capitalratiobytheendof1991.FokusBankachieveda5.5%capitalratio,butthiswasadequateasithadpromisedtoreduceitsbalancesheetsignificantlyinthefollowingtwoyears.By1992,theGBIF was the sole owner of Fokus Bank, and the majority owner of Den Norske andChristianiabanks(Moep.195-196).Later in 1992, the GBIF agreed to provideNOK 4 billion to bringDenNorske Bank andChristianiaBankuptoan8%capitaladequacyratio,subjecttoadditionalappropriationsbytheNorwegianStorting(Moep.196).ThiswouldalsobringFokusbanktoan8%capitalratioafterpartsofthebankweresoldasperitscontractwithGBIF. TheGBIFagreedtoinjectNOK600million inDenNorskeBank,andNOK200million inFokusbank if theircapitalratiosdippedbelow3.8%inlate1993,butthisdidnotoccur.TheGBIFlatersold229millionsharesofChristianiaBanktotheSBIFatapricebasedontheequitycapitalpershareinthebanks1992annualaccounts(Moep.196).TheGBIFalsohadcontracted to provide Fokus bank additional capital if needed to maintain their capitalrequirements, and in 1993, contributed NOK 20 million to help it merge withSamvirkebanken(Moep.198).Consequently,therewasasmallminorityofprivateownersinFokusbank.TheGBIFalsomadeloanstotheSBGFtosupportcapitalinjectionstoSparebankenRogalandandSparebankenMidt-Norge(Moep.196).


Source:Dreesp.28.


Source:Moep.204

SBIF

The SBIF made two injections in 1991, purchasing 19.6% of Oslobanken and 32.3% ofSamvirkebanken tomeet capital adequacy requirements (Moe p. 197). It alsomade twoconvertible loans in the savings bank Union Bank of Norway totalingNOK 1 billion andconvertibleloansofNOK70millionandNOK25.6millioninthesavingsbanksSparebankenVest andSparebankenMøre respectively. Of the1992 capital injections,NOK1.5billionoccurredthroughthesaleofequitycapitaltotheSBIF(Moep.196).

7. TheGBIFinjectedcapitalintoOslobankenin1993forthepurposeofliquidatingit.

ThoughNorwegianbanksasawholereportedimprovementsin1993,Oslobanken,whichwasalreadyownedinpartbytheSBIF,appliedforGBIFcapitalsinceitcouldnotmeetitscapitalrequirement(Moep.197).TheGBIFinitiallyrejectedthisrequest,insteadattemptingandfailingtoorchestrateamergerwithanotherbank.Duetothebank’sreportednegative


equity capital and a concern for systemic risk, the GBIF injected capital alongside CBGFguaranteestofacilitateliquidationofOslobanken.ThisconcludedinNovember2000.

8. PrivateshareholdersalwaysborelossesbeforeGBIFcapitalcouldbeexposed.

When the GBIF began direct capital injections, it required that all losses would be firstabsorbed by writing down the equity of the original private shareholders before thegovernmentcouldbeexposedtoanylosses(Milne101,Bergo-A).Ifthebankrefusedtodoso,thegovernmentwasentitledtowritedownthesharecapitalofthebank(Bergo-A).The conditions imposed on injections made through GBIF support were unattractive toshareholdersandbankmanagers,incentivizingthemtotryothersolutionsfirst,andusetheGBIFonlyasalastresort(Bergo-A).TheseconditionsalsomadesurethatGBIF-capitalizedbanksdidnothaveacompetitiveadvantageoverotherbanks.Theconditionthatrequiredlosses tobe absorbedby shareholderswas imperative to gainpolitical support from theelectoratetoconductrescueoperations.9. TheGBIFclaimedboardseatsoneachofthetwoprivatebankguaranteefunds,and

generallyreplacedthemanagementofrecapitalizedbanks.

TheGBIFreplacedtwoelectedmemberseachfromtheboardsoftheCBGFandtheSBGFafteritbeganmakingloanstothem(Moep.193).Thisensuredagovernmentmajorityoneach board, and these new guarantee fund boards would choose the new boards ofrecapitalizedbanks.Theyoftenreplacedbankmanagement,thoughitwasnotrequired(Moep.193;Bergo-A).However,thegovernancestructureofthebanksremainedintactwhiletheownershipwastransferredtotheGBIF(Bergo-B).Thisensuredthatpoliticianscouldnoteasilymicromanagetherecapitalizedbanks,andpreventedtheGBIFfrominterferinginthebanks’day-to-daybusinessoperations.

10. TheGBIFinjectionswerecontingentonanumberofconditionsincludingthewritedownofoldcapitaltocoverbanklossesandareductioninoperatingcosts.

Capital support through the private bank guarantee funds required a bank to present abusiness plan that improvedprofits and reduced risk-weighted assets (Drees p. 27). Forloans made to the private bank guarantee funds, the GBIF had the power to imposeconditionsonboththeprivatebankguaranteefundsandbanksthatreceivedinjectionsfromthem(Moep.187).CapitalinjectionsperformedthroughNorwegianprivatebankguaranteefundsordirectlyfromtheGBIFwerecontingentonreducingbankoperatingcosts,downsizingsomeactivitiesandtakingmeasurestorestraingrowthintotalassets(Bergo-A,Bergo-B).ThebanksthatreceivedGBIF injectionswererequired toregularlyupdate theGBIFon theircompliancewiththeconditionssetduringtheinjectionsandtheirprogresstowardsprofitability(Bergo-B).Conditionscouldincludeprogramsforcuttingoperatingcostsandbankbranches(Moe


p.6).Theseconditionswerecustomizedforeachbankandmadepublic(Bergo-A).TheGBIFdesigned these injections to be preferred capital without voting rights that accrueddividends(RegulationsfortheactivitiesoftheGBIF).The GBIF required the write-down of old capital to cover bank losses prior to capitalinjections to Fokus, Christiania, and Den Norske banks in 1991 (Moe p. 195). TheshareholdersofFokusandChristianiabankscouldnotagreeonhowtheircapitalshouldbewrittendown,sotheNorwegiangovernmentissuedroyaldecreesonDecember20,1991thatwrote their capital down to zero. TheGBIF subsequently became the sole owner ofFokus and Christiania banks; as Den Norske bank still had private owners, the GBIFpurchased preferred shares from it. In 1991 Den Norske bank also acquired mortgagecompanyRealKreditt,whoseshareholderspurchasedshares in thebankandunderwrotenewpreferencecapitalalongsidetheSBIF(Moep.195).TheSBIFsubsequentlybecamethemajorityownerofDenNorskebankwith55.6%ofitsshares.In1992, lowestprioritycapitalwaswrittendownagainstuncovered lossesprior tonewcapitalinjections(Moep.196).InDenNorskebank,privatesharecapital,CBGFpreferredcapital, and the lowest rated GBIF preferred capital waswritten down to zero, while inChristianiaBank,theparvalueofshareswaswrittendownfromNOK25toNOK7.FokusbankhadallitsCBGFcapitalwrittendowntozero,anditsshareswerewrittendownfromNOK25toNOK11(Moep.196-197).In1991-1992,theCBGFmadealossofNOK5.8billioninpreferredsharesinjectedintothetopthreeNorwegianbanks.As the crisis improved in 1993, the GBIF became increasingly confrontedwith issues ofownership and increases of capital, especially as existing agreements for GBIF capitalinjectionsoftenconflictedwithpricingbanksharessensibly(Moep.199).WhenChristianiaandDenNorskebanksoughttoissuenewcapital,theGBIFreplaceditsagreementswiththebankstoallowit(Moep.200).ThenewagreementsclarifiedtheGBIF’stemporaryroleasacontingencysafetynetuntiltheCBGFregainedsufficientresources;theyrequiredregularreporting to the GBIF but allowed the banks to make commercial decisions withoutencumberment.Fokusbankarrangedasimilaragreementin1995.

11. TheGBIFsolditssharesintheopenmarketandtotheSBIFbeforeclosingin2002;theSBIFtransferredloanrepaymentstotheTreasuryandtransferreditsstakeofDnBNORtotheMinistryofTradeandIndustryin2004beforeclosing.

In June 1992, the Norwegian state offered a call option on 25% of its shareholding ofChristianiabanktoformershareholders(Munthep.22).Theywereofferedat16NOKeach,adiscountof36%offtheirbookvalueof25NOK,andadiscountof66%relativetotheirpurchasepriceof46.73NOK,thoughonlya2.3%ofthemwerepurchased(Moep.195).There was no set deadline for reprivatizing the banks that received capital injections,allowingtheGBIFtosetitsownstrategyforsellingthesharesitheld(Bergo-B).However,the GBIF was intended to be a temporary measure, and its participations were to begraduallyphasedoutafterthecrisis(Munthep.21).


Becauseitwantedtobringinprivateshareholders,theGBIFofferedformerChristianiaBankshareholders,whosecapitalhadbeenwrittendowntozero,theopportunitytopurchaseupto 25% of GBIF’s shares in spring 1992 (Moe p. 195). Only 2.3% of GBIF’s shareswererepurchasedbyformershareholders.TheNorwegianStortingaddressedtheGBIFandSBIF’sroleinthebanksin1993-1994,bycallingforacontinuationofatleast1/3stateownershipofDenNorskeandChristianiabanksthrough1997 tomaintaindecision-making inNorway, focusingonNorwegian industries(Moep.200).StateownershipofFokusbankwasmaintained.TheSBIFwastodisposeofitsholdingsinallbutthetwomajorbanks,sellingassetsgraduallywhencommercialconditionsallowedit.In December 1993, Christiania bank sought additional private capital to strengthen itscapitalization,andissuedNOK2billionofequity,bringingthegovernment’sstakedownto68.9%(Moep.198).TheGBIFdecidedtoconvertitspreferredsharesinDenNorskeBanktocommonequity,makingtheGBIFthemajorityowner;thegovernmentowned87.5%ofDenNorskebankinDecember1993.Thefollowingspring,DenNorskebankissuedNOK1billioninshares,andtheGBIFalsosoldNOK1billionofitsshares,reducingstateownershipto72%.Duringthecrisis,theSBGFhadpurchasedprimarycapitalcertificatesinthreesavingsbankswithitsownfundsandGBIFloans(Moep.198).Inspring1994,itsoldtheseaboveparandrepaiditsGBIFdebtwithNOK2billionoutstanding,eliminatingallobligationsthesavingsbanksectorhadtotheGBIF.AstheGBIFwasintendedtobeasafetynetuntiltheCBGFandtheSBGFcouldsupporttheirownindustries,moneywastransferredfromtheGBIFtotheTreasuryassharesweresoldfrom1994onwardbasedontheGBIF’sliquidityneeds(Moep.201).WhiletheSBGFhadregaineditshealthbythattime,theCBGFdidnotrepayitsGBIFloansuntil1995,andtheGBIFremainedpartofthecommercialbanksafetynetwhileitrebuiltitscapital.ThegovernmentgraduallysolditsGBIFsharesafterthecrisistotheSBIFandtotheopenmarket (Honkapohja-A p. 23, Meinich). The GBIF sold Fokus Bank to Danske Bank, andgraduallysoldChristianiabank,whicheventuallymergedwithNordea,apan-Nordicgroup(Honkapohja-Ap. 23). TheGBIF also soldDennorskebank shares gradually, though thegovernmentstillowns34%ofDnBNOR,theentityresultingfromthemergerofDennorskebankandtheUnionBankofNorway.TheGBIF’sholdingamountedtoabout20%ofNorway’stotalbankingassetsasof2005(Bergo-B).TheNorwegiangovernmentkeepsits34.21%holdinginDnBNORtopreventitbeingsoldtoforeignbanksasof2019(Steigump.6;DnBNORAnnualReport2019p.21).TheGBIF’ssharesweremanagedbytheSBIFstartingin1995(Meinich).Bytheendof1995,FokusBankhadbeenfullyprivatized,andbytheendof1996,theGBIFandSBIFonlyheldreduced stakes in Den Norske Bank and Christiania bank (Moe p. 201). Later StortingconsiderationsrecommendedstateownershipinonlyoneinstitutioncenteredaroundDenNorske bank; consequently, Christiania bank shareswere sold toMerita Nordbanken in2000.Inthespringof2001,thelastremainingsharesheldbytheGBIF,104millionsharesor13%ofDnBNOR,weresoldintheopenmarket,andtheGBIFwassubsequentlynolongeranownerofbankshares(Meinich).


It became clear that the GBIFwas no longer necessary to support the two private bankdepositguaranteefundsby2001,andin2002,theFundwasabolished(Moep.201-203).Christiania,FokusandDenNorskebanknolongerhadtoreportquarterlytotheGBIF.Similarly, the SBIF transferred excess funds to theTreasury from1993 onwards, payingmorethanNOK26billionindividendstothestatebeforeitwasdissolvedin2004(Moep.203).In2003,theSBIFhada47.8%stakeinDnBASA,theparentcompanyofDenNorske,whichmergedwith theUnionBankofNorway to formDnBNORASA inDecember2003(Moep.203).TheSBIFinitiallyheld28.1%ofthemergedcompany,thoughtheNorwegianStortingagreedthattheSBIFshouldmakeprivatepurchasestoincreaseitsstaketo34%ofDnBNOR.In2004,whentheSBIFwasterminated,itsDnBNORsharesweretransferredtotheMinistryofTradeandIndustry.

III. Evaluation

ThegovernmentshareholdinginDnBNORillustratesthe“too-big-to-fail”problemendemicto allNordic countries (Steigump.6).DnBNOR’s total assets amounted to about90%ofNorway’sGDP.Itholdsablocking34%minorityinDnBNOR,amountingtoabout20%ofNorway’sbankingsector(Bergo-B;DnBNORAnnualReport2019p.21).Afterthecrisis,thetwomajorbanksthatwererescuedhadprofittoassetratiosthatweresimilar tootherNorwegianbanks thathadnotbeenrecapitalizedby theGBIF(Bergo-B).Bergo,DeputyGovernorofNorgesBank,acknowledgedthesuccessofGBIFinterventionsin Norwegian banks, but raises a few concerns. First, there exists a potential conflict ofinterestbetweenthegovernment’sroleasaregulatorandsupervisoroffinancialmarkets,anditsroleasashareholder.Inaddition,howwilltheGBIF’sinterestinDnBNORaffectitsactionsifDnBNORfails?AfterthewindingdownoftheGBIF,theNorwegiangovernmenttransferred themanagementofDnBNOR fromtheMinistryofFinance to theMinistryofIndustry, so that the regulating bodywas not directly responsible for the shares. Bergobelievesitispossiblebutunlikelythatpoliticalauthoritieswouldinterveneinthebankforpoliticalpurposes;itwouldbedifficultanyway,asthegovernmentisaminorityownerofDnB NOR, and its governance structure does not give a minority owner easy control.However,BergoisconcernedthatthegovernmentmightbeunwillingtowritedownDnBNORsharetocoverlosses,orwouldnotcrediblytreatitthesamewayasprivately-ownedbanks.Sincebanksthatreceivedacapitalinjectionfromthegovernmentwereabletocontinuetheirnormaloperations,borrowersfacednormalcreditconditions(Bergo-A).Heassertsthattheeconomic costs of the crisiswere greatly reduced because capital injections saved somebanksfromclosureandmaintainedthesupplyofcredit.TheGBIFwasestablishedasathirdlineofdefense,afterequitycapitalandprivatebankguaranteefunds,andwassuccessfulinpreventingsystemicdamagecausedbybanklosses.However,BergoalsosupportedclosingtheGBIFtoavoidmoralhazardafterthecrisis,andadvocatedforsolutionsthat focusonsavingthefinancialsystemratherthanshoringupindividualbanks.Akeyconcerninthegovernment’shandlingofthecrisiswasthegovernment’sunilateraldecision towrite the capitalofFokusandChristianiabank to zero (Moep.218).A1997


retrospective government report studied the bank’s values and simulated alternatives,ultimatelydecidingthatitwasaprudentdecisionthatwashandledresponsibly.However,itcriticizedthegovernmentforpreventingprivateshareholdersfromarticulatingargumentsin their defense prior to the write-down of their shares. This contributed to a lack ofconfidenceinthedecision(Moep.219).ThereportconcludesthatthereissomedoubtaboutthenecessityofwritingdownsharesinDenNorskebank,whichhadfewerlossesandwhoselossescameaboutinpartduetoitsgovernment-orchestratedpurchaseofRealkreditt.ThereportcriticizesthatthegovernmentdidnotevaluateDenNorskebank’sdiscountedfutureprofit value, which the report estimates would have sufficed to demonstrate that evenordinarysharecapitalhadvalueanddidnotneedtobewrittendown(Moep.220).However,DenNorskebank’sownshareholdersdecidedtowritedownthecapitalinsteadofseekingbetterprospects.

IV. References

[Andersen]Andersen,S.EvolutionofNordicFinance.NewYork,NY:PalgraveMacmillan,2014. https://books.google.com/books?id=-f1eCwAAQBAJ&printsec=frontcover#v=onepage&q&f=false[Bergo-A] Bergo, Jarle. “Crisis Resolution and Financial Stability in Norway.” 50thAnniversaryofBankIndonesia.December10,2003.https://www.norges-bank.no/en/news-events/news-publications/Speeches/2003/2003-12-10/.[Bergo-B] Bergo, Jarle. “Government Ownership of Banks – The NorwegianExperience.”NorgesBankConferenceonBankingCrisisResolution-TheoryandPolicy.June17, 2005. https://www.norges-bank.no/en/topics/Research/Conferences/2005-Banking-Crisis-Resolution---Theory-and-Policy---conference/bergohtml/[Drees] Drees, Burkhard, and Pazarbaşioglu Ceyla.The Nordic Banking Crises: Pitfalls inFinancial Liberalization? Washington, D.C.: International Monetary Fund, 1998.https://books.google.com/books?id=rNSeDXeaU9kC&printsec=frontcover#v=onepage&q&f=false.[Regulations for the Activities of the GBIF] “Forskrift for virksomheten til StatensBanksikringsfond.” Stortinget. November 29,1991.https://lovdata.no/dokument/SF/forskrift/1991-11-29-763?q=sikringsfond.[Gerdrup]Gerdrup,KarstenR.“ThreeEpisodesofFinancialFragilityinNorwaySincethe1890s.”BISWorkingPapers142(October2003).https://doi.org/10.2139/ssrn.901204.[Honkapohja-A] Honkapohja, Seppo, The 1990's Financial Crises in Nordic Countries(January21, 2009). Bankof FinlandResearchDiscussionPaperNo. 5/2009.Available atSSRN:https://ssrn.com/abstract=1427260orhttp://dx.doi.org/10.2139/ssrn.1427260


[Honkapohja-B] Honkapohja, Seppo. “Financial Crises: Lessons from the NordicExperience.” Journal of Financial Stability, no. 13 (2014): 193-201.https://www.sciencedirect.com/science/article/pii/S1572308914000527[Kaen] Kaen, Fred, andDagMichalsen. “The Effects of theNorwegian Banking Crisis onNorwegianEquities.” JournalofMultinationalFinancialManagement7,no.2(June1997):83–111.https://www.sciencedirect.com/science/article/pii/S1042444X97000078#bBIB6.[Meinich] Meinich, Per. “Statens Banksikringsfond” Store Norske Leksikon. 2019.https://snl.no/Statens_Banksikringsfond[Milne]Milne,Alistair.TheFalloftheHouseofCredit:WhatWentWronginBankingandWhatCan Be Done to Repair the Damage? Cambridge: Cambridge University Press, 2009.https://books.google.com/books?id=a12DPXDthewC&pg=PA101&lpg=PA101&dq=norway+banking+gbif+1991&source=bl&ots=_X3FcoTM5Z&sig=ACfU3U1252axVppYF3oUHsOCnVIWL0twKA&hl=en&sa=X&ved=2ahUKEwi9tYWzrdHlAhUlwFkKHUldCikQ6AEwAnoECAcQAQ#v=onepage&q=norway%20banking%20gbif%201991&f=false.[Moe] Moe, Thorvald G, Jon A Solheim, and Bent Vale. “The Norwegian BankingCrisis.”Norges Bank Occasional Papers, no. 33 (May 2004): 1–249. https://static.norges-bank.no/contentassets/ed5dd397dce345338046a22c7e07f959/hele_heftet.pdf?v=03/09/2017122240&ft=.pdf.[Munthe]Munthe,Preben.BankkrisenUtredning.Oslo:Statensforvaltningstjeneste,1992.https://www.regjeringen.no/globalassets/upload/kilde/odn/tmp/2002/0034/ddd/pdfv/154799-nou1992-30e.pdf[Storting DnB] Parliament Meeting June 4, 2003, Norwegian Storting § (2003).https://www.stortinget.no/no/Saker-og-publikasjoner/Publikasjoner/Referater/Stortinget/2002-2003/030604/4.[Act on State Bank Investment Fund] “Om lov om Statens Bankinvesteringsfond.”Stortinget. October 25, 1991. https://www.stortinget.no/no/Saker-og-publikasjoner/Stortingsforhandlinger/Lesevisning/?p=1991-92&paid=4&wid=a&psid=DIVL302&pgid=a_0121.[ActonStateBankGuaranteeFund] “OmlovomStatensBanksikringsfond.”Stortinget.January 25, 1991. https://www.stortinget.no/no/Saker-og-publikasjoner/Stortingsforhandlinger/Lesevisning/?p=1990-91&paid=4&wid=a&psid=DIVL535&pgid=a_0401&s=True.[Ongena]Ongena,Steven,DavidCSmith,andDagMichalsen.“FirmsandTheirDistressedBanks:LessonsfromtheNorwegianBankingCrisis.”JournalofFinancialEconomics67,no.1(January 2003): 81–112.https://www.sciencedirect.com/science/article/pii/S0304405X02002325.[Steigum] Steigum, Erling. “The Norwegian Banking Crisis in the 1990s: Effects andLessons,” December 30, 2010.https://www.aeaweb.org/conference/2011/retrieve.php?pdfid=567.


[Vittas]Vittas,Dimitri.FinancialRegulation:ChangingtheRulesoftheGame.Washington,DC: World Bank, 1992.http://documents.worldbank.org/curated/en/320891468765274145/pdf/multi-page.pdf#page=249.

V. KeyProgramDocuments

SummaryofProgram

ActonStateBankGuaranteeFund(01/25/1991)-OriginallawestablishingtheGBIFanditspowers. https://www.stortinget.no/no/Saker-og-publikasjoner/Stortingsforhandlinger/Lesevisning/?p=1990-91&paid=4&wid=a&psid=DIVL535&pgid=a_0401&s=True.ActonStateBankInvestmentFund(10/25/1991)–OriginallawestablishingtheSBIFandits capacity. https://www.stortinget.no/no/Saker-og-publikasjoner/Stortingsforhandlinger/Lesevisning/?p=1991-92&paid=4&wid=a&psid=DIVL302&pgid=a_0121.Statens Banksikringsfond (Meinich 2019) - Encyclopaedia entry on the GBIF.https://snl.no/Statens_BanksikringsfondParliamentMeetingJune4,2003–TranscriptofdiscussiononcontinuedstateownershipofDnB NOR and increase of ownership from 28.1% to 34%.https://www.stortinget.no/no/Saker-og-publikasjoner/Publikasjoner/Referater/Stortinget/2002-2003/030604/4.Legal/RegulatoryGuidance

ActonStateBankGuaranteeFund(01/25/1991)-OriginallawestablishingtheGBIFanditspowers. https://www.stortinget.no/no/Saker-og-publikasjoner/Stortingsforhandlinger/Lesevisning/?p=1990-91&paid=4&wid=a&psid=DIVL535&pgid=a_0401&s=True.ActonStateBankInvestmentFund(10/25/1991)–OriginallawestablishingtheSBIFandits capacity. https://www.stortinget.no/no/Saker-og-publikasjoner/Stortingsforhandlinger/Lesevisning/?p=1991-92&paid=4&wid=a&psid=DIVL302&pgid=a_0121.RegulationsfortheActivitiesoftheGBIF(11/29/1991)–UpdatetoGBIF’spowersallowingittomakedirectcapitalinjections.https://lovdata.no/dokument/SF/forskrift/1991-11-29-763?q=sikringsfond.Reports/Assessments

BankkrisenUtredning(Munthe1992)–Norwegiangovernmentreportonthebankingcrisis.https://www.regjeringen.no/globalassets/upload/kilde/odn/tmp/2002/0034/ddd/pdfv/154799-nou1992-30e.pdf


VI. Appendix

AppendixI:DenNorskeBank

Source:Moep.233


AppendixII:ChristianiaBank

Source:Moep.235


AppendixIII:FokusBank

Source:Moep.237

AppendixIV:Oslobanken

Source:Moep.239


AppendixV:SparebankenNOR

Source:Moep.241

AppendixVI:TimelineofMajorEvents

1988:FailureofSunnmørsbanken;CBGFguaranteeofitscommitments,andNorgesBankliquiditysupport(Moep.184).November1988:SparebankenNordandTromsøSparebankinsolventJuly1989:SparebankenNordandTromsøSparebankmergetomakeSparebankenNord-Norge;getNOK1.5billionloanfromNorgesBankOctober1989:NorionBank fails;CBGFguaranteesonlynonbankdeposits;NorgesBanklosesonitsloansandprovidesanewliquidityloanthatCBGFguaranteesJanuary1990:SunnmørsbankenmergeswithChristianiaBankLate1990:FokusBankgetsNOK1.5billionguaranteefromCBGF1989-1990:SBGFdisbursesNOK1.9billion(1%totalassetsofsavingsbanks)inninebanks,and guarantees of NOK 1.2 billion; CBGF makes NOK 1.4 billion of provisions toSunnmørsbankenandNorionBankandagreestomakecapitalinjectionsonacase-bycasebasisuptoNOK2billionamongstallmemberbanks(Moep.187).January25,1991:ProposaltoestablishtheGBIFMarch15,1991:GBIFisestablishedwithcapitalofNOK5billionJune17,1991:CBGFapprovesinjectionofpreferredcapitaltoDenNorskeBank,ChristianiaBank,andSmvirkebankenNOK1.6billion


LateJune1991:EquityguaranteeofNOK1.5billioninFokusBankreplacedwithNOK1.5billioninpreferredsharesJune 28, 1991: CBGF offered NOK 1 billion of preferred shares; distributed only toSamvirkebanken, though other banks also applied for support: NOK 196 million wasallocatedAugust1991:GBIFprovidessupportloanstotheCBGFforpreferredsharecapitalinjectionstoChristianiaBankandFokusBankrespectivelyOctober1991:GBIFgivesSBGFtwoloansofNOK160millioneachtobuyprimarycapitalcertificatesinSparebankenRogalandandSparebankenMidt-NorgeOctober1991:StortingestablishestheSBIFwithNOK4.5billion;allocatesanadditionalNOK6billiontoGBIF,proposessubsidizeddepositsfromNorgesBank,reducedpremiumpayments to two guarantee funds, appropriates NOK 1 billion to the SBGF and reducesliquidityrequirementsforbanksNovember29, 1991:The Storting allows theGBIF to directly purchase shares, primarycapitalcertificatesandotherequitycapitalinstruments,andallowstheKinginCounciltowritedownbankshares(Moep.196).December20,1991:SharecapitalofChristianiaBankandFokusBankarewrittendowntozeroandGBIFpurchasessharecapitalinbothbanks,becomingtheirsoleowner1991:SBIFinvestmentof19.6%innewsharesinOslobanken;SBIFinvestmentof32.2%innewsharesinSamvirkebankenSpring1992:GBIFoffersformershareholdersofChristianiaBanktheoptiontopurchase25%ofshares;2.3%wererepurchased;SBIFandinvestorsunderwritepreferredsharesinDenNorskeBank–SBIFowns55.6%ofsharesSpring/Summer1992:GBIFmakesthreeloansofNOK219milliontoSBGFtofundcapitalinjections to Sparebanken Rogaland and Sparebanken Midt-Norge as well as a NOK 15millionloantocoverdeficitinHofSparebankandtheSBGF’sguaranteeliabilityinHedmarkSparebankenLate1992:GBIFinjectsNOK4billiontoFokus,DenNorske,andChristianiabankstohelpthemachievecapitaladequacyratios;NOK1.5billionofthiswasSBIFinjectionsLate1992:(Moep.187).DenNorskesharecapital,CBGFpreferredshares,andlow-rankingGBIFpreferredshareswrittendowntozero;ChristianiasharewrittendownfromNOK25toNOK7,FokusBankCBGFpreferredshareswrittendowntozero,andshareparvaluewrittendownNOK25toNOK111992:SBIFinvestsNOK1billionofconvertiblesubordinateddebtinUnionBankofNorwayandNOK700millioninSparebankenVestandNOK25.6millioninSparebankenMøreApril1993:OslobankenappliesforGBIFfunding–GBIFsaysnobutinjectssharecapitaltohelpliquidatethebankDecember1993:ChristianiaBankraisesNOK2billionofprivatesharecapital–governmentstake reduced to 68.9%; GBIF converts preferred shares in Den Norske Bank to sharesmakingGBIFmajorityownerof87.5%.


1993:GBIFprovidesconditionalcapitalofNOK20millionofsharestohelp facilitatethemerger of Fokus Bank and Samvirkebanken; SBIF converts subordinated debt inSparebankenNORtoshares,owning48%ofthebankin1993;GBIFwritesdownallsharesofOslobankenandbecomesitssoleownerLate1993:NewagreementbetweenGBIFandChristianiabankthatendedtheobligationofthebanktoreporttotheGBIF,andtheGBIFabilitytoimposenewrequirements,assoonasthebankachieveditscapitalratioandtheCBGFachieveditsminimumsizetoserveasthesafetynetfortheindustryEarly1994:NewagreementbetweenGBIFandDenNorskeBankMay/June1994:NOK1billionofGBIFDenNorskesharesandNOK1billionofnewDenNorskesharessoldinmarket–governmentownershipdownto72%.Spring1994:SBGFsellsprimarycapitalcertificatesinSparebankenRogaland,SparebankenMidt-Norge,andSparebankenNord-Norgeaboveparandrepaysall itsdebt toGBIFwithNOK2billionremaining.EndofsavingsbanksectorobligationstoGBIFSpring1995:NewagreementbetweenGBIFandFokusBank1994-1995:GBIFtransfersownershipofbankstotheSBIFbutkeeps16.2%ofDenNorskeBank1995:GBIFsellsFokusBanktoDanskeBank;CBGFrepaysallitsloansobligationstoGBIF1996:GBIFsellsChristianiaBanksharestoSBIFandmarket2000:GBIFliquidatesOslobankencompletely;SBIFsells itsshares inChristianiaBanktoMeritaNordbanken2001:GBIFsells104millionsharesor13%ofDenNorskeBankintotheopenmarket2002:GBIFabolished2003:DenNorskeBankmergeswithUnionBankofNorwaytoformDnBNOR.SBIF47.8%shareofDenNorskebecomes28.1%ofDnBNOR.2004:SBIFterminated;sharesinDnBNORtransferredtoMinistryofTradeandIndustry

Norway – GBIF/SBIF (Nordic Crisis 1991) · 2020. 3. 17. · 1Research Associate, Yale Program on...

Documents

Transcript of Norway – GBIF/SBIF (Nordic Crisis 1991) · 2020. 3. 17. · 1Research Associate, Yale Program on...