The Ministry of Finance, Bank of Estonia and the Financial Supervision Authority presented an overview of the situation on the international financial markets at the end of last week and gave their opinion of the risks in the financial sector of Estonia at today's cabinet meeting. Possible measures that could be applied by the state of Estonia to prevent and manage financial crises and the need to improve these processes were also discussed.
“Unlike many other countries, no liquidity or solvency difficulties have appeared in the financial sector of Estonia and the banks operating here are well capitalised," said Minister of Finance of Estonia Ivari Padar. “Even though there is currently no need for additonal stabilising measures, Estonia should be prepared to react quickly and sufficiently whenever necessary. This readiness is also a part of the framework for ensuring financial stability that has been agreed in the European Union.”
The Government decided to broaden the possible scope of state guarantees and loans and to enable a fast decision-making. “It is important to make our laws more flexible and the Ministry of Finance will present the first part of the legislative package to the Government in November. We also have to perfect our framework of financial crises according to the changed situation in the world, and speed up the reaction time from the current level,” explained Padar.
The steps taken by nearby countries to ensure financial stability were also highlighted during the discussion. The Minister of Finance said that the list of measures is basically the same for all countries. “However, it is obvious that the concerns regarding the financial stability of each state have been different and this means that the solutions that have actually been used are also different,” added Padar.
Similarly to other EU member states, Estonia can also provide aid to banks operating here by giving loans, making capital injections, issuing state guarantees or acquiring the bank's bonds or problematic assets should they be hit with difficulties. “However, the only purposes of state aid can be to guarantee the stability of the financial system and to prevent the transfer of risks to the real economy. The government is certainly not going to pay for the mistakes made by bank management," assured Padar.
Considering that more than 90 percent of the Estonian financial institutions are owned by Swedish and Danish banking groups, the Minister of Finance confirms that any actions would be coordinated to consider cross-border impacts. “If Estonia needs to apply measures to guarantee the reliability of the financial system, this will be done in cooperation with Sweden and other concerned countries in the region,” explained Padar. “It is natural that this also means we have to take responsibility in case we have to share the financial burden.”
In order to promote financial stability and enhance confidence, Estonian Government decided to abolish the 10 percent co-insurance requirement from the deposit guarantee scheme and to increase the amount of guaranteed deposits up to 50,000 euros per customer per financial institution. The amendment entered into force on 9 October 2008.
(Ministry of Finance, Public Relations Department, October 30, 2008)
Estonian Government agreed on measures to improve crisis management tools