WHEN American officials were discussing how to structure their bail-out proposal, a number of economists mentioned that they might want to take a long look at the Swedish model. In the early 1990s, a Swedish property bust led to a Scandinavian banking crisis. Here's what The Economist had to say in January of 1993:

REGULATORS and politicians in Norway, Sweden and Finland have made the same new year's resolution: to solve the problems of their ailing banks. They will not find it easy. Though the three countries have spent over $ 16 billion propping up their banks in the past three years, many still look shaky. And critics are slamming state support for distorting competition and delaying long-overdue financial restructuring.

The banks got into trouble in all-too-familar ways. Financial deregulation gave them greater freedom to lend, which they exploited unwisely. Scandinavian property went through a nasty boom-and-bust cycle. And recession (especially severe in Finland when trade with the former Soviet Union collapsed) led to mountains of bad debts.

The potential cost of rescuing the banks from their mistakes is soaring. In October, when Finland's big banks unveiled their results for the first eight months of 1992, it became clear that their losses for the year could reach 10 billion markka ($ 2.2 billion), double the 1991 figure. On January 5th the government asked the Finnish parliament to double the size of a public fund set up to support troubled banks, to 50 billion markka. Before launching the fund in April 1992, the government had already dished out 8 billion markka to Finnish banks in a bid to avoid a credit crunch.



The Swedish government is also digging into its pockets again. On December 23rd it restructured state-owned Nordbanken, one of the country's biggest and sickest banks. The bank's dud loans, almost three-quarters of them property-related, have been hived off into a so-called "bad bank" called Securum AB. The government is injecting SKr24 billion ($ 3.3 billion) into Securum as equity, and will also guarantee SKr10 billion of loans to the company.



The government also said it would take control of Gota Bank, Sweden's fourth-largest bank. In September the government agreed to meet Gota Bank's obligations after Trygg-Hansa, the bank's owner and one of Sweden's largest insurers, said it could no longer afford to support it. The government has also provided SKr7.3 billion in loans and guarantees to Forsta Sparbanken, the country's biggest savings bank...

There has been surprisingly little debate in the three countries over whether so much taxpayers' cash is being spent sensibly. One explanation is that, with entire banking systems at risk, officials preferred to prop banks up first and answer questions later. Another is that the cost is only now becoming clear. Johan Lybeck, a professor at Gothenberg School of Economics who has written a book on the banking disaster, reckons the cost of bailing out Sweden's banks will be at least SKr100 billion.



The rescue strategies being pursued in the three countries have common threads. But there are also big differences. Sweden, for instance, has gone further than either Norway or Finland in publicly underwriting its financial system. A law passed on December 18th guarantees that banks and some other credit institutions (such as mortgage banks) will meet their commitments on a timely basis. No limit is set to the amount that can be spend on rescues or to how long the guarantee will last. Moreover, the state has agreed to back not just deposits but also most subordinated debt and even off-balance-sheet liabilities such as swaps.