The 1950s was characterised by pronounced stability of the banking sector in many countries, which the existing literature has attributed to tight regulation. However, other factors than regulation are important for financial stability. The purpose of this paper is to consider the case of Denmark and investigate whether the absence of banking crises was due to robustness of the banking sector’s customers rather than tight regulation.
The paper analyses the resilience of Danish wage and salary earners to adverse economic shocks in the 1950s based on household-level data on income, consumption, savings and wealth from the Danish Expenditure and Saving Survey of 1955.
The paper finds that the Danish household sector in the 1950s had a high debt payment ability and was very robust to even large income shocks. The results indicate that the stability of the Danish financial sector was not only due to tight regulation but also reflected a high credit quality of the banking sector’s loan portfolio.
During the past decade or so, a micro-data-based framework has become the “state of the art” approach among central banks to analyse the financial robustness of the household sector. However, such an approach has so far not been applied in studies on historical financial-stability issues. The paper adds to the literature by using granular household-level data to assess the financial resilience of the Danish household sector in the 1950s.
The author wishes to thank reviewers for useful comments on preliminary versions of this paper. Views and conclusions expressed in this paper are those of the author and do not necessarily represent those of Danmarks Nationalbank. The author alone is responsible for any remaining errors.
Abildgren, K. (2016), "Household micro-data, regulation and financial stability: the case of Denmark in the 1950s", Studies in Economics and Finance, Vol. 33 No. 2, pp. 320-335. https://doi.org/10.1108/SEF-07-2015-0176
Emerald Group Publishing Limited
Copyright © 2016, Emerald Group Publishing Limited