The Role of Capital Adequacy Regulations in a Period of Crises: Swedish Banking 1915–1935

This chapter analyses the introduction and use of capital adequacy requirements in Swedish commercial banking during the period 1915–1935. From an international perspective, early regulation was introduced in the Bank Law of 1911 and was primarily aimed to ensure economic stability in the banks. The regulation meant that banks could not accept deposits more than five times the sum of their share capital and funds. The chapter analyses the effects of this regulatory change for a range of different banks. How were capital adequacy rules designed, and how did banks of different sizes react to their introduction? Were there any alterations to the capital adequacy requirements, and if so, how did the banks react to these? The analysis is based on Swedish commercial banks’ annual and monthly reports, which were gathered by the Bank Inspection Board and published by the Swedish Central Statistical Office. The database includes all Swedish commercial banks, but a selection of banks has been made to analyse different problems during the interwar period.