Too Big to Bail

Mark and I ended our trip with visits that peaked the interest of all of the financial emphasis MBA candidates in the program – trips to two of Scandinavia’s largest banks. From discussions on the step-by-step growth of Nordea bank to discussions on the size of Scandinavian banks relative to central governments at the National Bank of Denmark, we were impressed by both the strength and the weakness of the banking system as it is now.

Nordea, which stands for Nordic Idea, is one of the largest banks in Scandinavia but it was not always this way. Their stratospheric rise came through aggressive, unified approaches, specific to which phase or objective they were trying to accomplish in their business model. The need for a cohesive message was emphasized to us by their Senior Vice President, who handled communications for Nordea from its first acquisition steps to its final consolidations which took over ten years to finish.

Nordea emphasized the need for a company to focus on “one approach rather than the best approach.” Nordea also realized that it cannot be all things to all people and it must focus on its core competencies based on where it was in the growth stage. Therefore, the company took steps, year by year, to become the power player it now is in Scandinavia. But now, Nordea is in the process of selling off some of its underperforming operations and focusing on reorganizing its branches because it was too big.

Which is more or less the discussion we had with the National Bank of Denmark. In a presentation explaining the Euro economic crisis and how it is being handled, the bank highlighted that the size of Scandinavian banks relative to central government economies in the region is impossibly large. Which raised the question: when *it* hits the fan, how are governments supposed to bail out banks that are larger than the governments themselves? More importantly, how can these banks be regulated to prevent this from happening?

We could not present a solid answer, but neither has anyone in Europe. It will be interesting to watch what solution the European countries, in particular the Scandinavian ones, can come up with to prevent another 2008… if they can come up with any solution at all.