Explaining Responses in Danish and Irish Banking to the Financial Crisis

The 2008 global financial crises produced very different responses in Ireland and Denmark. While both countries embraced depositor guarantee schemes and recapitalization programmes, their design and adoption reveal important variations. Crucially, the Irish state initially assumed full responsibility for sector losses and only later defined terms for industry contributions. In Denmark a negotiated settlement from the onset passed most of the risk associated to banking failures collectively to the sector. Bearing in mind that vital design decisions regarding national schemes were made in the span of a few weeks, the paper assesses three competing explanations for these differences: 1) variations in national vulnerability 2) variations in industry structure and 3) variations in institutional features regarding regulatory and collaborative legacies. The paper concludes that institutional legacies conditioned the Danish solution thus presenting this country with an option not available to Ireland.