The Need for Liquidity and the Capital Structure of Swedish Banks Following the Financial Crisis

Victor Nilsson, Joakim Nordstrom and Krister Bredmar
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Victor Nilsson: School of Business, Economicsand Law, University of Gothenburg, Sweden
Joakim Nordstrom: School of Business, Economicsand Law, University of Gothenburg, Sweden
Krister Bredmar: School of Business, Economicsand Law, University of Gothenburg, Sweden

International Journal of Finance & Banking Studies, 2014, vol. 3, issue 2, 10-27

Abstract: Banks had a large part in the developments taking place in the years after the outbreak of the crisis in 2007, as many banks had an excessively low capital base, involving too much risk in its businesses. In this study, the largest four banks in Sweden have been investigated. The financial crisis affected the banks differently, depending on the markets of expansion. Excessive risk-taking has been found, where one bank expanded aggressively into new markets and did not appreciate the risks on these new markets. CEO compensation and risk seeking boards are factors that might have caused such behaviour. All of the banks have made noticeablechanges to their capital structure, increasing it annually, accompanied by a risk-reduction movement in their assets to improve the stability in most of the banks. The new regulation’s focus on both quality and quantity is in accordance with the views that are expressed in the framework. The banks have altered their goals to levels several per cent above the regulations, in contrast to before the crisis when they were often as close as possible. The impact of the new liquidity regulations has been limited, asthe banks continue to work with their internal measures. The banks have all changed their view of capital ratio and liquidity, where many of the banks have doubled the amount of these posts and now find these measures to be both beneficial and a way to gain trust and stability.

Keywords: Basel Accords; Basel Committee; Liquidity; Capital structure; Financial crisis; Management Control (search for similar items in EconPapers)
Date: 2014
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