Forum for Science, Industry and Business

Sponsored by:     3M 
Search our Site:

 

Crises lead banks to operate more opportunistically

23.09.2009
Financial crises place significant strain on banks, causing them to behave more opportunistically than clients are accustomed to. Business clients should count on this, according to Uppsala University business economist Kristina Furusten, who has studied the topic of contractual relationships between banks and corporate clients during the 1990s financial crisis in Sweden.

During the 1990s financial crisis, Swedish banks were criticised in the media for causing unnecessary corporate bankruptcies through, for example, increased collateral requirements and unexpected credit cancellations. Questions, similar to those being raised today, were raised about the morality of bank behaviour.

"Credit relationships between banks and their clients are based both on formal, written credit agreements and informal understandings and accords," explains Kristina Furusten of the Department of Business Studies. "Clients are presumed to operate opportunistically at the expense of the banks, but not vice versa."

As Kristina Furusten shows in her dissertation, however, banks did behave opportunistically during the 1990s financial crisis. They breached verbal agreements more often than had been usual and altered the practices that governed their relationships with clients. They took more frequent recourse to the terms of written agreements, which they interpreted more strictly than they had prior to the financial crisis. Their relationships with clients assumed a more formal character, and the psychological climate changed. The actions of bank office managers and loan officers were more tightly controlled by bank rules, and major bank reorganisations occurred. Many clients were assigned new officers at centralised insolvency departments, leaving them feeling anonymous and illtreated. Companies with financial difficulties faced poorer prospects for obtaining support from their banks.

"The conclusion is that contractual relationships are characterised by mutual opportunism when banks find themselves in crisis situations," says Kristina Furusten.

Strong external pressure from such sources as the state, the financial supervisory authority and rating institutes prompts banks to make a clear break with previous practices as a way of restoring their credibility. Significant pressure is also brought to bear on individual bank employees, causing them to fear making decisions that they might subsequently be called on to defend.

"Individual companies need to appreciate that their agreements with banks are dynamic, that the conditions are subject to change over time and that banks always have the advantage when it comes to interpretation," says Kristina Furusten.

She defended her dissertation on 17 September.

For additional information, please contact Kristina Furusten, +46-(0)155-28 59 20 or +46-(0)70-606 72 48, e-mail: Kristina.Furusten@fek.uu.se

Johanna Blomqvist | idw
Further information:
http://uu.diva-portal.org/smash/record.jsf?pid=diva2:220656
http://www.vr.se

More articles from Business and Finance:

nachricht Mathematical confirmation: Rewiring financial networks reduces systemic risk
22.06.2017 | International Institute for Applied Systems Analysis (IIASA)

nachricht Frugal Innovations: when less is more
19.04.2017 | Fraunhofer-Institut für Arbeitswirtschaft und Organisation IAO

All articles from Business and Finance >>>

The most recent press releases about innovation >>>

Die letzten 5 Focus-News des innovations-reports im Überblick:

Im Focus: Can we see monkeys from space? Emerging technologies to map biodiversity

An international team of scientists has proposed a new multi-disciplinary approach in which an array of new technologies will allow us to map biodiversity and the risks that wildlife is facing at the scale of whole landscapes. The findings are published in Nature Ecology and Evolution. This international research is led by the Kunming Institute of Zoology from China, University of East Anglia, University of Leicester and the Leibniz Institute for Zoo and Wildlife Research.

Using a combination of satellite and ground data, the team proposes that it is now possible to map biodiversity with an accuracy that has not been previously...

Im Focus: Climate satellite: Tracking methane with robust laser technology

Heatwaves in the Arctic, longer periods of vegetation in Europe, severe floods in West Africa – starting in 2021, scientists want to explore the emissions of the greenhouse gas methane with the German-French satellite MERLIN. This is made possible by a new robust laser system of the Fraunhofer Institute for Laser Technology ILT in Aachen, which achieves unprecedented measurement accuracy.

Methane is primarily the result of the decomposition of organic matter. The gas has a 25 times greater warming potential than carbon dioxide, but is not as...

Im Focus: How protons move through a fuel cell

Hydrogen is regarded as the energy source of the future: It is produced with solar power and can be used to generate heat and electricity in fuel cells. Empa researchers have now succeeded in decoding the movement of hydrogen ions in crystals – a key step towards more efficient energy conversion in the hydrogen industry of tomorrow.

As charge carriers, electrons and ions play the leading role in electrochemical energy storage devices and converters such as batteries and fuel cells. Proton...

Im Focus: A unique data centre for cosmological simulations

Scientists from the Excellence Cluster Universe at the Ludwig-Maximilians-Universität Munich have establised "Cosmowebportal", a unique data centre for cosmological simulations located at the Leibniz Supercomputing Centre (LRZ) of the Bavarian Academy of Sciences. The complete results of a series of large hydrodynamical cosmological simulations are available, with data volumes typically exceeding several hundred terabytes. Scientists worldwide can interactively explore these complex simulations via a web interface and directly access the results.

With current telescopes, scientists can observe our Universe’s galaxies and galaxy clusters and their distribution along an invisible cosmic web. From the...

Im Focus: Scientists develop molecular thermometer for contactless measurement using infrared light

Temperature measurements possible even on the smallest scale / Molecular ruby for use in material sciences, biology, and medicine

Chemists at Johannes Gutenberg University Mainz (JGU) in cooperation with researchers of the German Federal Institute for Materials Research and Testing (BAM)...

All Focus news of the innovation-report >>>

Anzeige

Anzeige

Event News

Plants are networkers

19.06.2017 | Event News

Digital Survival Training for Executives

13.06.2017 | Event News

Global Learning Council Summit 2017

13.06.2017 | Event News

 
Latest News

Quantum thermometer or optical refrigerator?

23.06.2017 | Physics and Astronomy

A 100-year-old physics problem has been solved at EPFL

23.06.2017 | Physics and Astronomy

Equipping form with function

23.06.2017 | Information Technology

VideoLinks
B2B-VideoLinks
More VideoLinks >>>