Published online by Cambridge University Press: 24 June 2013
Malmö diskont, a Swedish bank, was forced to close in 1817 after 14 years of operation because of a bank run. At the time, it was one of only three private commercial banks in Sweden. Eventually, all three banks succumbed to bank runs. The purpose of this article is to study the 1817 banking crisis from a new perspective by attempting to answer the following research question: why did Malmö diskont go under? Institutional theory is used here as a research tool. The assumption is that institutions set the limits for individuals' actions and sometimes direct them towards particular actions. The conclusions are derived from analysing the institutional framework at the time and how it interacted with Malmö diskont. The crisis evolved in two stages. The first stage occurred when the financial position of Malmö diskont severely deteriorated in the interaction between institutions and actors in 1817. The implementation of a bailout and a new institutional structure would have been necessary to save the bank. This conclusion complements earlier theories related to monetary or credit overexpansion as to why banking crises occur. The second stage occurred when the Swedish government allowed Malmö diskont to fall in October 1817.