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 maintaining the systemic risk buffer lie in the structural vulnerability of the Estonian economy.

Estonia’s economy is vulnerable because it is small and open. This lets problems caused by unforeseen negative shocks emerge rapidly and to a greater extent than in many other European countries. The risks are compounded by the high proportion and concentration of exports and investment, the relatively large debt of the non-financial sector in relation to incomes, the comparatively modest level of household financial buffers, and the very bank-centred financial sector. Having sufficient capital on hand can help banks cope with unexpected financial problems.

In order to increase awareness of the structural vulnerabilities in the Estonian economy and to ensure a level playing field, 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.