Featured Research

from universities, journals, and other organizations

Crises Lead Banks To Operate More Opportunistically

Date:
September 21, 2009
Source:
Uppsala University
Summary:
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 one business economist, who has studied the topic of contractual relationships between banks and corporate clients during the 1990s financial crisis in Sweden.

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.


Story Source:

The above story is based on materials provided by Uppsala University. Note: Materials may be edited for content and length.


Cite This Page:

Uppsala University. "Crises Lead Banks To Operate More Opportunistically." ScienceDaily. ScienceDaily, 21 September 2009. <www.sciencedaily.com/releases/2009/09/090921134704.htm>.
Uppsala University. (2009, September 21). Crises Lead Banks To Operate More Opportunistically. ScienceDaily. Retrieved September 21, 2014 from www.sciencedaily.com/releases/2009/09/090921134704.htm
Uppsala University. "Crises Lead Banks To Operate More Opportunistically." ScienceDaily. www.sciencedaily.com/releases/2009/09/090921134704.htm (accessed September 21, 2014).

Share This



More Science & Society News

Sunday, September 21, 2014

Featured Research

from universities, journals, and other organizations


Featured Videos

from AP, Reuters, AFP, and other news services

Will Climate Rallies Spur Change?

Will Climate Rallies Spur Change?

Newsy (Sep. 21, 2014) Organizers of the People's Climate March and other rallies taking place in 166 countries hope to move U.N. officials to action ahead of their summit. Video provided by Newsy
Powered by NewsLook.com
Thousands March in NYC Over Climate Change

Thousands March in NYC Over Climate Change

AP (Sep. 21, 2014) Accompanied by drumbeats, wearing costumes and carrying signs, thousands of demonstrators filled the streets of Manhattan and other cities around the world on Sunday to urge policy makers to take action on climate change. (Sept. 21) Video provided by AP
Powered by NewsLook.com
Sierra Leone in Lockdown to Control Ebola

Sierra Leone in Lockdown to Control Ebola

AP (Sep. 21, 2014) Sierra Leone residents remained in lockdown on Saturday as part of a massive effort to confine millions of people to their homes in a bid to stem the biggest Ebola outbreak in history. (Sept. 20) Video provided by AP
Powered by NewsLook.com
Climate Change Rally Held in India Ahead of UN Summit

Climate Change Rally Held in India Ahead of UN Summit

AFP (Sep. 20, 2014) Some 125 world leaders are expected to commit to action on climate change at a UN summit Tuesday called to inject momentum in struggling efforts to tackle global warming. Duration: 00:41 Video provided by AFP
Powered by NewsLook.com

Search ScienceDaily

Number of stories in archives: 140,361

Find with keyword(s):
Enter a keyword or phrase to search ScienceDaily for related topics and research stories.

Save/Print:
Share:

Breaking News:
from the past week

In Other News

... from NewsDaily.com

Science News

Health News

Environment News

Technology News



Save/Print:
Share:

Free Subscriptions


Get the latest science news with ScienceDaily's free email newsletters, updated daily and weekly. Or view hourly updated newsfeeds in your RSS reader:

Get Social & Mobile


Keep up to date with the latest news from ScienceDaily via social networks and mobile apps:

Have Feedback?


Tell us what you think of ScienceDaily -- we welcome both positive and negative comments. Have any problems using the site? Questions?
Mobile: iPhone Android Web
Follow: Facebook Twitter Google+
Subscribe: RSS Feeds Email Newsletters
Latest Headlines Health & Medicine Mind & Brain Space & Time Matter & Energy Computers & Math Plants & Animals Earth & Climate Fossils & Ruins