During 1991 and 1992, a housing bubble in Sweden deflated, resulting in a severe credit crunch

Credit crunch

A credit crunch is a reduction in the general availability of loans or a sudden tightening of the conditions required to obtain a loan from the banks. A credit crunch generally involves a reduction in the availability of credit independent of a rise in official interest rates...

 and widespread bank insolvency. The causes were similar to those of the subprime mortgage crisis

Subprime mortgage crisis

The U.S. subprime mortgage crisis was one of the first indicators of the late-2000s financial crisis, characterized by a rise in subprime mortgage delinquencies and foreclosures, and the resulting decline of securities backed by said mortgages....

 of 2007-2008. In response, the government took the following actions:

• The government announced the state would guarantee all bank deposits and creditors of the nation’s 114 banks.
• Sweden's government assumed bad bank debts, but banks had to write down losses and issue an ownership interest (common stock
  Common stock
  Common stock is a form of corporate equity ownership, a type of security. It is called "common" to distinguish it from preferred stock. In the event of bankruptcy, common stock investors receive their funds after preferred stock holders, bondholders, creditors, etc...
  
  ) to the government. Shareholders at the remaining large banks were diluted by private recapitalizations (meaning that they sold equity to new investors). Bondholders at all banks were protected.
• Nordbanken and Götabanken were granted financial support and nationalized at a cost of 64 billion kronor
  Swedish krona
  The krona has been the currency of Sweden since 1873. Both the ISO code "SEK" and currency sign "kr" are in common use; the former precedes or follows the value, the latter usually follows it, but especially in the past, it sometimes preceded the value...
  
  . The firms' bad debts were transferred to the asset-management companies Securum
  Securum
  Securum was a Swedish state company founded in 1992 during the financial crisis in Sweden 1990–1994 for the purpose of taking on and unwinding bad debts from the partly state-owned Nordbanken bank...
  
   and Retriva which sold off the assets, mainly real estate, that the banks held as collateral for these debts.
• When distressed assets were later sold, the proceeds flowed to the state, and the government was able to recoup more money later by selling its shares in the nationalized banks in public offerings.
• Sweden formed the Bank Support Authority to supervise institutions that needed recapitalization.

This bailout initially cost about 4% of Sweden's GDP, later lowered to between 0-2% of GDP depending on various assumptions due to the value of stock later sold when the nationalized banks were privatized.

The economists Brad DeLong

J. Bradford DeLong

James Bradford DeLong commonly known as Brad DeLong, is a professor of Economics and chair of the Political Economy major at the University of California, Berkeley. He served as Deputy Assistant Secretary of the United States Department of the Treasury in the Clinton Administration under Lawrence...

 and Paul Krugman

Paul Krugman

Paul Robin Krugman is an American economist, professor of Economics and International Affairs at the Woodrow Wilson School of Public and International Affairs at Princeton University, Centenary Professor at the London School of Economics, and an op-ed columnist for The New York Times...

 have proposed the Swedish experiment as a model for what should be done to solve the economic crisis currently affecting the United States. Swedish leaders who played a role in devising the Swedish solution and have spoken about the implications for other countries include Urban Bäckström

Urban Bäckström

Urban Bäckström is a Swedish economist who is the current CEO of the Confederation of Swedish Enterprise. He is a former Governor of the Bank of Sweden.-Personal:...

 and Bo Lundgren

Bo Lundgren

Bo Axel Magnus Lundgren is a Swedish politician. He is the former leader of the Moderate Party. Lundgren was born in Kristianstad in Skåne. Between 1991 and 1994, he served as Deputy Minister of Finance with special responsibility for taxation...

.