Lundgren in Dublin and A Proposal Relating to NAMA

I have written before about the incisive and articulate contributions of Bo Lundgren, the Swedish Finance Minister in charge during their banking crisis of the early 1990s.  Lundgren was in Dublin on Tuesday, giving a talk at the Institute of International and European Affairs and testifying before the Oireachtas Committee on Finance and the Public Service.  A productive guy, he also appeared on Morning Ireland.  Here’s a link to his interview on that show (scroll down to find it) which has lots of interesting material. I will post a link to the transcript of his Oireachtas appearance when it is put up.

I think there are statements in Lundgren’s Morning Ireland interview which could be probably be latched on to by all sides of the debate on banking being played out on this blog.  Rather than attempt to score points on this, I will only note that Lungren argues that a political consensus greatly helps when dealing with a banking crisis (about 7 minutes in).

In the Irish context, perhaps the key issue causing political controversy is the price that NAMA will pay for the assets.  In Sweden this was set by an independent Valuation Committee overseen by a cross-party board. The emerging details suggest that the price that NAMA pays will come from a complex valuation process recommended to the NAMA officials by HSBC (the IT today reported that 370 categories of information must be provided by banks on each developer on the loan books so that HSBC can use this information to develop a valuation mechanism.)

In relation to this, let me put forward a suggestion that could potentially lead to all-party support for the government’s approach, which Lundgren viewed as crucial: Appoint a cross-party board to approve NAMA’s pricing of assets being transferred. I think it might be hard for opposition politicians to turn down an offer like this and it could be a way to address well-founded opposition concerns about potential losses to the taxpayer as well as less well-founded concerns such as the idea that NAMA is a bailout for developers.

If the only solid support for NAMA’s pricing mechanism comes from representatives of an unpopular government, then it’s hard to see how this process will be successfully sold to a public that is already highly concerned (not to mention angry) about the potential costs to the taxpayer of solving the banking crisis.

More Swedish Bank Blogging

Swedish bank blogging is undoubtedly the new craze on the interweb.  I enjoyed this story of the poney-tailed Swedish finance minister scolding Geithner for his plan and the linked-to story dubbing the Swedes “the acknowledged masters of bank rescues” (As an honour, it reminded me a little of when Ireland were the acknowledged masters of Eurovision.)  Charlie Fell also has a nice piece in today’s Irish Times comparing the NAMA plan with what happened in Sweden.

Lessons from Sweden

I linked last weekend to former Swedish Finance Minister’s Bo Lundgren’s appearance on the Marian Finucane show.

Lundgren also appeared recently before the TARP Congressional Oversight Committee, chaired by Harvard Law Professor Elizabeth Warren and his written testimony was the basis for the section on Sweden in the committee’s latest report. Here’s a webpage containing the written testimony of Lundgren and three other experts on other banking crises (Great Depression, 1980s S&L and 1990’s Japan) who all appeared before the committee at the same time.

The webpage also has full video of this meeting. The experts delivered short verbal testimony (Lundgren’s starts about 14 minutes in) and about 40 minutes in there is a question and answer session. Prof. Warren’s opening line of questioning about arguments against nationalisation was of particular interest to yours truly but the whole session is really useful.

The Swedish model for resolving the banking crisis of 1991-93

Lars Jonung at the European Commission has released a new paper on this topic: you can download it here.

Abstract: This study presents the main features of the Swedish approach for resolving the banking crisis of 1991-93 by condensing them into seven policy lessons. These concern (1) the importance of political unity behind the resolution policy, (2) a government blanket guarantee of the financial obligations of the banking system, (3) swift policy action where acting early was more important than acting in exactly the right manner, (4) an adequate legal and institutional framework for the resolution procedures including open-ended public funding, (5) full disclosure of information by the parties involved, (6) a differentiated resolution policy minimizing moral hazard by forcing private sector participants to absorb losses before government financial intervention, and (7) the proper design of macroeconomic policies to simultaneously end the crisis in both the real economy and the financial sector.