IMF.org: The Nordic Banking Crisis from an International Perspective

Caused by

1. Bad banking


2. Inadequate market discipline


3. Weak regulatory and supervisory frameworks


4. Inadequate macro policies and adverse macroeconomic developments

The above causes can create contagion, as bank or payment system weaknesses destroy credibility of all banks, and lead to creditor and depositor runs regardless of the soundness of individual banks. Contagion is often triggered by some market, policy or political shock that becomes the "wakeup call" for dealing with problems so far ignored, causing dramatic shifts in expectations and a systemic bank run, which often is accompanied by a run on the currency. The latter holds particularly with increasing capital flows if the country is borrowing heavily abroad.