The effects of the Norwegian banking crisis on Norwegian equities

Abstract

We examine the information effects of Norwegian savings and commercial bank financial distress announcements on Norwegian bank and non-bank stock prices. We find that Norwegian commercial bank failures during the Norwegian banking crisis were associated with negative common stock abnormal returns for both Norwegian banks and large Norwegian corporations listed on the Oslo Børs. We interpret this finding as supporting the conclusion of Norges Bank that the banking crisis was an economy-wide systemic crisis and required intervention by Norges Bank and the Norwegian government. Although we find no systemic market-wide information effects associated with the failure of Norwegian savings banks, we are reluctant to conclude that these bank failures had no effect on the households, businesses and local economies served by these banks. The absence of negative abnormal returns on large commercial banks or publicly listed Norwegian corporations for the savings-bank events may reflect the fact that large commercial banks were serving a different banking clientele than the savings banks and that large Norwegian corporations did not rely on savings banks for financing.