1907 - Financial crisis managed
A financial crisis broke out in the United States. It rapidly spread to Europe and Sweden. For the first time, the Riksbank acted as a modern central bank and managed the crisis.
The crisis impacted heavily on Swedish exports and many banks were affected by liquidity problems. Several were forced to reorganise or were acquired. Sweden was also impacted by a housing crisis, as housing prices fell and possibilities for consumers to borrow decreased.
Significant credits held by several Swedish banks abroad were cancelled by the lenders. To pay their debts, companies and banks turned to the Riksbank to borrow foreign currency.
In November, the Riksbank started to raise the discount rate (the policy rate). The Riksbank also took over part of a foreign loan from the Swedish National Debt Office with the aim of strengthening the liquidity of the Swedish financial system. Later on, parts of the Riksbank’s foreign bond holdings and part of its gold reserve were sold. In addition, at the start of 1908, the City of Stockholm took a foreign loan that the Riksbank was given access to. The bank’s foreign reserves thereby increased heavily.
Under Governor Karl Langenskiöld’s leadership, the Riksbank acted, for the first time, as a modern central bank and crisis manager. Due to his intervention, Sweden was able to ride out this financial crisis.