The systemic risk buffer is intended to increase the resilience of the financial sector to non-cyclical risks that could have a serious negative impact on the national financial system or the real economy.

From 1 August 2016 all banks and banking groups are required to hold a systemic risk buffer of 1% of risk exposures located in Estonia. The requirement must be met with common equity tier 1 own funds.

Buffer rate

1%

Applies to

All banks and banking groups authorised in Estonia

Risk exposure

Risk exposure located in Estonia

From

1 August 2016

Legal basis

The Decree of the Governor of Eesti Pank No.6 of 30 May 2016 "Establishment of the requirement for the systemic risk buffer"

The reasons for applying the systemic risk buffer requirement lie in the small size and openness of the Estonian economy, which make the economy vulnerable to negative developments in the external environment. The problems caused by unforeseen negative shocks may emerge rapidly and to a greater extent than in many other European countries. The risks to financial stability are increased by the lack of diversity in the credit portfolios of the banks and the relatively small financial assets held by households. The buffer requirement helps to ensure that the banks have sufficient capital to cover systemic risks.

In order to ensure a level playing field for the whole market, to maximise the effectiveness of the measure, and to reduce the risk of regulatory arbitrage, Eesti Pank has requested the authorities of other member states to apply equivalent additional buffer requirements to the banks that provide banking services in Estonia through branches or directly cross-border for their risk exposure in Estonia.