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Theoretical and empirical accounts of Swedish financial supervision in the twentieth century
Linköping University, Department of Management and Engineering, Economics. Linköping University, Faculty of Arts and Sciences.
2012 (English)Doctoral thesis, comprehensive summary (Other academic)
Abstract [en]

The thesis is concerned with the history of financial supervision in Sweden during the twentieth century up to the financial crisis in the early 1990s. To this end a theoretical framework is developed which is based on institutional economics, law and economics, theories on bureaucracies, regulatory enforcement and policy analysis. Except for the attempt to propose how financial supervision and supervisors could be understood theoretically, the thesis address problems ranging from the organization of supervision in relation to regulation and the changes of the regulated market, the constraints and abilities put on supervisors in different institutional arrangements and regulatory regimes, and the competence of supervisors. The extensive use of empirical data aims to make the thesis a contribution also to financial history research in general, and the growing research on the histories of financial supervision in particular.

Place, publisher, year, edition, pages
Linköping: Linköping University Electronic Press, 2012. , 106 p.
Series
Linköping Studies in Arts and Science, ISSN 0282-9800 ; 555
Keyword [en]
Financial supervision, institutional economics, adaptive enforcement, financial history, Sweden
National Category
Economics and Business
Identifiers
URN: urn:nbn:se:liu:diva-77439ISBN: 978-91-7519-865-1 (print)OAI: oai:DiVA.org:liu-77439DiVA: diva2:526944
Public defence
2012-06-07, C3, Hus C, Campus Valla, Linköpings universitet, Linköping, 10:15 (English)
Opponent
Supervisors
Available from: 2012-05-15 Created: 2012-05-15 Last updated: 2012-05-15Bibliographically approved
List of papers
1. Bureaucratic agencies as third-party enforcers
Open this publication in new window or tab >>Bureaucratic agencies as third-party enforcers
(English)Manuscript (preprint) (Other academic)
Abstract [en]

In institutional economic theory, the court is most commonly recognized, or even identified, as THE third-party enforcer. The court is however only one of several types of third-party enforcers of the state apparatus. Bureaucratic agencies are for example normally assigned a ‘bundle’ of regulations and policies to enforce and implement. Financial supervisory agencies, health inspections and environmental protection agencies are examples of such. Accounting for bureaucratic agencies as third party enforcers in conventional institutional economics theory poses some problems. However, by incorporating bureaucratic agencies as third-party enforcers into the theoretical framework, institutional economics as a field may become better able to account for the very important processes by which institutions are implemented and enforced. As actors of the institutional structure, bureaucratic agencies can be defined as types of ‘institutional organizations’.

Keyword
Institutional economics; third-party enforcers; bureaucratic agencies
National Category
Economics and Business
Identifiers
urn:nbn:se:liu:diva-77435 (URN)
Available from: 2012-05-15 Created: 2012-05-15 Last updated: 2012-05-15Bibliographically approved
2. Rigid regulation, dynamic markets and adaptive enforcement
Open this publication in new window or tab >>Rigid regulation, dynamic markets and adaptive enforcement
(English)Manuscript (preprint) (Other academic)
Abstract [en]

When market adopts a new product, service or organization of business, the existing regulation becomes increasingly incomplete due to the slow pace of the regulatory process. For several reasons, this mismatch is inevitable, and even has its benefits. The ‘rules of the game’ must be stable for economic actors to plan for and initiate the uncertain trial-and-error process of innovation. At the same time however, the institutional structure of the state must also be flexible to facilitate for these market dynamics. In this article, the adaptive enforcement of financial regulations made by supervisors is argued to be an example of this institutional flexibility. The adaptive enforcement can help to bridge the gap between the ‘rigid’ and incomplete regulation and a changed market, say after a broad adoption of an innovation. The financial markets are commonly recognized as prone to innovate and adopt innovations, so this may be a market for which the mismatch between the ‘rigid regulation’ and the dynamic market at time is especially troublesome. Through its room for credible discretion, the enforcer of the financial regulation ideally adapts its enforcement of ‘rigid’ regulation to a changing market, such as following a broad market adoption of an innovation. In an empirical case, it is shown how the Swedish banking supervisor during the 1910s adapted its enforcement of the banking act to the very dynamic bank market.

Keyword
Regulation; enforcement; discretion; Sweden
National Category
Economics and Business
Identifiers
urn:nbn:se:liu:diva-77436 (URN)
Available from: 2012-05-15 Created: 2012-05-15 Last updated: 2012-05-15
3. The competence of financial supervisors and changing regulatory regimes
Open this publication in new window or tab >>The competence of financial supervisors and changing regulatory regimes
(English)Manuscript (preprint) (Other academic)
Abstract [en]

In the last few years financial supervisors have received major criticism. In the light of the global financial crisis, evidence for failures of supervisors seems to abound in many countries. One common explanation to the perceived failures has been that the supervisory personnel has lacked in competence. A handful of researchers have taken an interest in the matter of financial supervisors’ competence, suggesting that the staff’s previous work experience is a relevant indicator of its competence. However, due to a lack of data, only a few empirical studies have been conducted so far, and none have related the data specifically to the historical context in which the supervisor as been active. This article uses empirical data for the staff of the Swedish Bank Inspection Board between 1910 and 1990 to investigate how the staffs’ work experience, as an indicator of supervisor competence, relates to the financial history of Sweden during this time period. The important events of the financial history are believed to be financial and banking crises in addition to the regulatory regimes in Sweden in the twentieth century.

According to the empirical case, the staff of the surveyed supervisory agency on average had very little work experience from outside the agency before and at the start of the major financial crisis in Sweden in the early 1990s. Supervisors’ lack of work experience from the private financial sector is often assumed to lead to a lower quality of the supervision. However, in the decade before the financial crisis in the early 1920s, the Inspection Board’s staff had plenty of work experience from the private sector. However, they lacked experience from working as supervisors. During the Great Depression years, an international crisis which Sweden went through comparatively unharmed, the Inspection Board had its most experienced staff of the surveyed time period. In the ‘state control’ regime that followed the Second World War, the agency lacked staff competent from other parts of the public sector, indicating its lack of skill to engage in the regulatory process during this period.

Keyword
Financial supervision, Sweden, competence
National Category
Economics and Business
Identifiers
urn:nbn:se:liu:diva-77437 (URN)
Available from: 2012-05-15 Created: 2012-05-15 Last updated: 2012-05-15Bibliographically approved
4. A suspended referee in a new game – the Swedish Bank Inspection Board in the 1980s and early 1990s
Open this publication in new window or tab >>A suspended referee in a new game – the Swedish Bank Inspection Board in the 1980s and early 1990s
(English)Manuscript (preprint) (Other academic)
Abstract [en]

After the financial crisis in Sweden in the early 1990s the Bank Inspection Board, the agency responsible for the supervision of all credit institutes and the securities trade, received much criticism for its ‘evident’ failure. Despite the critique, few accounts of what the Inspection did and did not do in the decade preceding the crisis have been presented. Internationally too, empirical studies of the work of financial supervisors preceding a financial crisis are rare. This article provides the most detailed empirical account to date of the work of the Bank Inspection Board between 1980 and mid-1991.

It is found that the Inspection may have allocated too much of its scarce resources on matters not directly related to its objectives, such as consumer complaints. Support for the criticism that the supervisors lacked competence can also be found in data on the work experience of the Inspection’s staff. However, several features of the institutional structure regulating the Inspection also constrained it from adapting to the markets changes, especially the budget application process and the need for a parliament decision for the Inspection to reorganize internally. In addition, the ‘sidelined’ role of the Inspection in the ‘state control’ regulatory regime between the 1940s and late 1970s made it unprepared to adapt its regulatory enforcement during the 1980s when the Riksbank dismantled its regulatory enforcement.

Keyword
Banking supervision; regulatory regimes; Sweden
National Category
Economics and Business
Identifiers
urn:nbn:se:liu:diva-77438 (URN)
Available from: 2012-05-15 Created: 2012-05-15 Last updated: 2012-05-15Bibliographically approved

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