Explaining Policy Responses to Danish and Irish Banking Failures during the Financial Crisis

The 2008 global financial crisis produced very different responses in Ireland and Denmark. While both countries embraced depositor guarantee schemes and recapitalisation programmes, these were designed and adopted in significantly different ways. 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 outset transferred most of the risk associated with banking failures collectively to the banking sector. The article assesses two explanations for these different responses: (1) variations in domestic exposure to the financial industry, notably its relative size, dominant business models and exposure to real estate markets and (2) variations in institutional features, notably banking sector preferences and legacies of collective action. While limited explanatory power can be attributed to the former, collaborative legacies decisively swayed policy responses in Denmark and Ireland in the hectic weeks of late September and early October 2008.