ABSTRACT
In the Nordic-Baltic region, only the Baltic’s and Finland are within the euro area, but the continental Nordics–whose banks are also the main operators within Baltic financial systems—remain outside, and are not direct participants in, efforts to build an European Union banking union. In 2006, two years before the global economic and financial crisis struck, large parts of the banking sectors of Denmark, Finland, Norway and Sweden were under Nordic control, i.e. there were extensive interlinkages via cross-border liabilities. Nordic claims on the Baltic States grew rapidly until the economic and financial crisis hit in 2008. The key factor driving crisis response in the Baltic States was interconnectedness with continental Nordic banking systems. The consequence of the Nordic parent banks not assessing their own risk properly in turn led to the interest rate offered to the Baltic borrowers being too low.
