Macroprudential policy covers systemic risk analysis and assessment, and the deployment of measures to ensure financial stability. The macroprudential authority in Estonia is Eesti Pank. Under the Eesti Pank Act, the duties of Eesti Pank include supporting the stability of the financial system and conducting macroprudential policy.

The objective of macroprudential policy is to increase the resilience of the financial system and to reduce the build up of systemic risks that threaten the financial stability. If the systemic risk realises and the whole financial system or parts of it experience difficulties, it seriously disrupts the supply of financial services and has a negative impact on the real economy.

Systemic risks can come from various sources, meaning that the choice and design of appropriate macroprudential instruments depends on intermediate objectives. Eesti Pank has set out six intermediate objectives with consideration of the ESRB recommendation ESRB/2013/1 and the specific features of the Estonian financial system:

  • to mitigate and prevent excessive credit growth and leverage
  • to mitigate and prevent liquidity risk and funding risk in the financial system
  • to limit the direct and indirect exposure concentration
  • to limit excessive risk-taking by systemically important institutions
  • to ensure the resilience of the financial infrastructure
  • to ensure the resilience of the banking sector

The use of instruments to achieve each intermediate objective is assessed from indicators (see diagram).

Eesti Pank works with other domestic authorities in its macroprudential supervision, particularly the Estonian Financial Supervision Authority and the Ministry of Finance. Work is coordinated between the authorities by a joint committee. Working with other domestic authorities is important primarily because some of the macroprudential tools, like tax policy or regulation of the insurance industry and financial markets, lie outside the responsibility of Eesti Pank. Risk assessment also needs to consider the particular risk profiles of individual market participants, which are covered by microprudential supervision.

At the international level, the most important cooperation for Eesti Pank is the work with the European Central Bank, the European Systemic Risk Board, and the authorities responsible for financial stability in the Nordic-Baltic region.

  • The Single Supervisory Mechanism (SSM) makes the European Central Bank responsible for macroprudential supervision alongside the states that have joined the SSM. If needed, the European Central Bank can set stricter capital and liquidity requirements for banks.
  • The European Systemic Risk Board (ESRB) analyses financial stability at the European Union level, assesses risks, coordinates macroprudential measures, and makes recommendations and gives warnings if needed (see Cooperation – Participation in the ESRB). The recommendations and warnings of the ESRB can be the basis for the formation and adoption of the macroprudential policy of Eesti Pank, in addition to its own initiative and proposals from the European Central Bank.
  • Regional cooperation is important for Eesti Pank as well, as the Estonian banking system is strongly linked to the Nordic countries. Macroprudential policy issues in the Nordic-Baltic region are discussed regularly at the Nordic-Baltic Macroprudential Forum (NBMF), which brings together central bank governors and heads of supervisory authorities (see Cooperation – Nordic-Baltic partnership).