Chapter 6 Management of the banking

crisis and state ownership of commercial banks Hans Petter Wilse Mounting losses in 1987 and subsequent years created a growing crisis in Norwegian banks. Up through 1990 the problems were with a few exceptions handled e ¢ ciently without any economic involvement by the authorities other than temporary liquidity support. In 1991 the crisis had, however, reached such proportions that extensive government measures were necessary to bolster con-dence in the Norwegian banking system. Banks holding more than 60 per cent of bankstotal assets by the end of 1987 needed help to get through the crisis or would be closed down during the six succeeding years. The corresponding \u85gure was 20 and 88 per cent for savings and commercial banks respectively 1. Legislation and measures were developed as the crisis unfolded. After a brief introduction, this article describes chronologically the handling of the banking crisis in some detail and how, as a result of the crisis, the central government became majority owner of the three largest commercial banks. When banks ended up as government property, with the aim of continued operations, the intention was always to bring in private investors when conditions improved. Two di¤erent public funds were created as part of the government involve-ment in crisis management. The Government Bank Insurance Fund (GBIF) was set up to handle the banking crisis, and should be of a temporary nature. 1Cf table 2. The \u85gures mentioned above concern the banks mentioned in that table. In addition several banks had support loans form their respective guarantee funds or capi-tal injections on commercial terms, facilitated by participation from the Government Ban