Then came the BSA, which enabled the government to avail itself of independent expertise and avoid potential conflicts of interest. The authority divided banks into three categories: long- term profitable with short-term problems; long-term profitable with uncertain capital-adequacy ratios and medium-term problems; basket cases likely to be beyond reconstruction.
These classifications allowed the BSA to decide quite easily how to handle each bank: Some might require no more than increased capital contributions from shareholders, some might be nationalized, and some might close. Troubled loans were transferred to a separate company. In all, the government's intervention was devised on a commercial basis to minimize the cost to the taxpayer.
Lundgren and his colleagues got less than they had braced for. By the spring of 1993, favorable winds in the international economy enabled some banks to withdraw their applications for support, and the bad loans were disposed of more swiftly than anticipated.
"Altogether, support of the banking sector amounted to the equivalent of 4 percent to 5 percent of GDP," Lundgren says. The World Bank put the figure at 6.4 percent, but even at that, the cost was half the size of the original problem. It's no wonder the Swedish solution is now viewed as a model of probity and intelligence.
Brian Waterhouse identifies eight key features of the Swedish method:
1. Early recognition of a crisis.
2. Acknowledgment that action is pressing.
3. Unconditional official support for the banking system.
4. Political leadership and unified public opinion.
5. Intervening legislation.
6. Independent supervision of the reconstruction process.
7. Nationalization if necessary.
8. Determination to denationalize as soon as possible.
It's full of Scandinavian rectitude, as I read it -- but a grim list when put against Japan's performance over the past decade. "The Swedes finished the race," Waterhouse observes.
"The Japanese are still stuck in the starting gate." Plenty of lessons here for Tokyo, then, before the International Monetary Fund begins its evaluation of the financial system this spring.
"Government intervention is unavoidable if nonperforming loans and loan losses are mounting in an economy." That is among Lundgren's more salient conclusions. Had he stayed home in Stockholm and advanced this thought to friends over aquavit and cigars, it would have been one thing. To articulate it in Tokyo in the winter of 2002 is pointedly another.
As Lundgren recounts, the Swedes learned from others when they set out to climb out of their crisis. It's a habit for which the Japanese are noted, and they ought not break it now.
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