Regulatory experiences in the UK and the Nordic countries: a review of the literature

Since deregulation in the 1980s, all advanced countries have gone along the same route increasingly shaping their financial regulations according to principles and theoretical models set out by global standard setters. Structural fragilities, failures of regulators, and short-sighted supervisors are characteristics most of them share as the heated theoretical debate about the lessons coming out of the recent crisis has shown. However, specific differences between countries are still important, especially as regards the economic, cultural, and political differences which have given rise to dynamic interactions between regulation, the shaping of financial systems, the business models used by financial firms, and the degree of financial deepening. In the literature on financial regulation, the experience in the UK and in Nordic countries represents two particularly important chapters. Banking and financial regulation in the UK has traditionally been taken as a model for the rest of the world. Many of the most hotly debated questions in the literature regarding the bases of financial regulation – such as discussion between rules-based and principles-based regulation, the related issue of light-touch versus heavy-touch regulation, the relations between central banking and prudential supervision, and the different institutional regulatory architectures – have started with developments in British financial regulation. The crises of Nordic countries during the early 1990s, classified as being among the “Big Five” in the history of financial crises from the post-War period, are stark confirmation of the difficulty for regulators and supervisors of dealing with the risks which arise during the transition from tightly regulated to competitive and internationally open financial systems. On the other hand, the regulatory solutions for crisis management adopted by the Nordic countries are still considered as one of the few examples of successful crisis resolutions, in terms of comprehensive and in-depth interventions and appropriate balancing of systemic fiscal costs with moral hazard. The present work is divided into two parts: the first presents an overview of the literature during the main stages of the development in banking regulation in the UK from the 1970s to date; the second part is an analysis of the main literature concerning the regulatory implications of the 1990s crises – in Finland, Norway, and Sweden – from when they broke out until their resolution.