Failures in the financial system may occur unexpectedly and rapidly pass on to other markets and market participants. Financial crises can have great costs for society and so it is important that authorities prepare well for such eventualities.
Crisis management in Eesti Pank is based on three pillars:
1) Ensuring sufficient liquidity for the Estonian banking system, by providing exceptional liquidity loans (Emergency Liquidity Assistance) to banks, where necessary
2) Developing the Estonian crisis management framework together with the Estonian Financial Supervision Authority and the Ministry of Finance
3) Working with international partners to prevent and resolve crises
The principles for cooperation between Eesti Pank, the Financial Supervision Authority and the Ministry of Finance to prevent and manage financial crises are set out in the Cooperation Agreement.
The Estonian financial system is closely integrated with international financial markets, and so international cooperation in the management of financial crises plays a very important role. Eesti Pank has signed multilateral agreements with institutions responsible for the financial stability in EU countries and the Nordic-Baltic region, and a Memorandum of Understanding with the central banks of Denmark, Finland, Iceland, Latvia, Lithuania, Norway and Sweden.
Another crucial component of the Estonian crisis management system is the deposit guarantee scheme. This protects the funds of small depositors and thus increases trust and stability in the financial sector. The deposit guarantee scheme is run by the Estonian Guarantee Fund and the Deputy Governor of Eesti Pank sits on the Guarantee Fund’s nine-member Supervisory Board.
- Memorandum of Understanding on Cooperation regarding Banks with Cross-Border Establishments between the Central Banks of Denmark, Estonia, Finland, Iceland, Latvia, Lithuania, Norway and Sweden (15.12.2016)
- Memorandum of Understanding on Cooperation and Coordination on cross-border financial stability between relevant Ministries, Central Banks, Financial Supervisory Authorities and Resolution Authorities of Denmark, Estonia, Finland, Iceland, Latvia, Lithuania, Norway and Sweden (31.01.2018)
- Memorandum of Understanding on Cooperation between the Financial Supervision Authorities, Central Banks and Finance Ministries of the European Union on Cross-border Financial Stability (01.06.2008)