The Scandinavian financial crisis of the early 1990s followed a period of financial liberalisation in the 1980s. These policies included liberalisation of bank lending volume, removal of interest rate caps, modernisation of bank capital requirements, and the introduction of relatively high-risk financial products.

This liberalisation caused a rapid expansion in the volume of bank loans made available for speculative investment and banks became much more sensitive to creditor default rates. In this more fragile state, negative economy-wide shocks exposed the illiquidity of the banks’ loan portfolios and threatened the solvency of the banking system.