Financialisation and the Varieties of Residential Capitalism: Denmark and Ireland, 1982ꟷ2015

This paper employs comparative case analysis to investigate the rise of market-based banking and the associated build-up of household debt which characterised the financialisation of Denmark and Ireland 1982-2015. The two cases pose an interesting puzzle about the form and impact of financialisation across the worlds of capitalism (Social Democratic and Liberal). While both experienced growth in the financial sector and associated buildup of household debt, both fared very differently during and in the immediate aftermath of the global financial crisis (GFC). Data from the Organisation for Economic Co-operation and Development (OECD) reveal that in 2015 Denmark was the most heavily indebted of the member nations with household debt standing at staggering 293 % of disposable income, while Ireland ranks fifth with debt standing at 185 % of disposable income. Alongside the growth in debt, there has been profound growth in the Danish and Irish financial sectors, with bank assets as a percentage of GDP following a similar trend in both cases, increasing from 50% in 1990 to over 200 % in 2008. However, despite these similarities, the GFC revealed that there were crucial differences in how these two models of market-based banking worked. By 2012 Danish banks, having paid for their own bailout had returned to profitability, and the housing system remained relatively stable. Irish banks, on the other hand, experienced a widespread collapse and a general credit squeeze emerged which exacerbated a burgeoning housing crisis. The theoretical and conceptual framework builds around this tension between financialisation as a general trend which has empirically distinct national forms. The framework draws on general theories of financialisation from economic sociology and mid-range theories of banking and housing from political economy to develop a conceptual model of financialisation which allows for mediation between the general and specific features. Analyses of the Danish and Irish cases via the lens of the theoretical framework suggest that global banks were the key transmission mechanism for the general process of European financialisation. The process included two distinct but not exclusive types of financialisation. Type 1 entailed the penetration of foreign banks into domestic markets. Type 2, on the other hand, witnessed the increased use of wholesale funding by national banking sectors. The paper traces the mutually shaping dialectic between nationally specific forms of market-based banking and varieties of residential capitalism and demonstrates how and why the various institutional buffers and filters shaped the very different sets of consequences which flowed from the financial boom and bust cycle (Bohle, 2017, Schwartz & Seabrooke, 2008). Finally, the paper outlines the various post-crisis forms of financialisation which have emerged in both cases and what these mean for the nexus between finance and housing into the future.