CHRONICLE OF MONETARY POLICY OF 1998
OCTOBER

1 OCTOBER

Decision of the Board of Eesti Pank
On Launching Bankruptcy Proceedings Against EVEA Pank

The Board of Eesti Pank studied the information and documents on the financial situation of EVEA Pank, provided by the Banking Supervision Department of Eesti Pank, as well as the letters of the Ministry of Finance and EVEA Pank. The Board concluded that:

1. EVEA Pank failed to comply with the order of the Treasury Department of the Ministry of Finance to transfer EEK 20 million to the account specified by the Treasury Department;
2. the minimum size of the bank's own funds did not correspond to the requirements set down in Article 37, Clause 4 of the Credit Institutions Act (ECU 5 million at the exchange rate of Eesti Pank);
3. the capital adequacy did not correspond to the ratio introduced by the 15 April 1997 Decision of the Board of Eesti Pank (10%);
4. as of 30 September 1998 the bank failed to meet the reserve requirement established by the 7 May 1996 Decision of the Board of Eesti Pank and the respective decrees of the President of Eesti Pank;
5. the balance sheet of EVEA Pank indicated that the assets of the bank were inadequate to fully meet the claims of all creditors.

Thus, EVEA Pank lacked the necessary assets, including reserves, to meet the claims of all creditors; this inadequacy was not temporary and the bank was deemed to be permanently insolvent.

Proceeding from the above and Article 9, Clause 3 of the Law of the Central Bank, Article 79, Article 80, Clause 1, Section 3 and Article 81, Clauses 1 and 2 of the Credit Institutions Act, the Board of Eesti Pank decided to launch bankruptcy proceedings against EVEA Pank (Business Register code No 10087628) and authorized the President of Eesti Pank to take the necessary steps for initiating the bankruptcy proceedings. Under the Credit Institutions Act, the license of EVEA Pank was thus revoked from 2 October 1998.

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The Board of Eesti Pank authorized the executive management of the bank to take an active part in the merger of Eesti Forekspank (Estonian Forexbank) and Eesti Investeerimispank (Estonian Investment Bank) and temporarily acquire majority stakes in both banks. The Board proceeded its decision from the assumption that despite a capital shortage Eesti Forekspank has a positive net worth and in the future, after the merger with Eesti Investeerimispank, also a considerable potential value.

According to the agreement between Eesti Pank, Eesti Forekspank and Eesti Investeerimispank, the majority stake shall be acquired as follows:

1. Eesti Pank will acquire 50.24% of Eesti Investeerimispank shares for the total value of EEK 135 million;
2. Eesti Pank covers possible losses for up to EEK 100 million from loans issued by Eesti Forekspank. The guarantee agreement will be automatically invalidated after the closed issue new shares to Eesti Pank has taken place;
3. Eesti Pank will acquire 12 million shares issued by Eesti Forekspank with nominal value, ie EEK 120 million;
4. after the completion of the merger of Eesti Forekspank and Eesti Investeerimispank and changing the shares of the latter against Eesti Forekspank shares, Eesti Pank will own over 50% of the merged bank and the capital adequacy of the new bank will be at least 14%.

Eesti Pank will make the investment from its free reserves. Eesti Pank will appoint at least three members to the five-member board and take an active role in choosing the executive management of the new bank. At the same time Eesti Pank will launch negotiations for finding a strategic investor for the new bank to whom Eesti Pank will sell its entire stake in the merged bank by the end of 1999.

2 OCTOBER

The City Court of Tallinn launched bankruptcy proceedings against EVEA Pank.

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Eesti Pank bought from Eesti Forekspank 66,633 Eesti Investeerimispank inscribed common stocks of EEK 1,000 nominal value for EEK 135 million.

6 OCTOBER

Decree of the President of Eesti Pank
On Imposing a Moratorium on ERA Pank

On 6 October 1998, ERA Pank sent a letter to Eesti Pank, informing the central bank of its temporary solvency problems that will not enable meeting the claims of all its customers. Proceeding from the letter and with the aim of determining the reasons and nature of ERA Pank's solvency problems and in order to take measures to rectify the situation and protect the interest of the customers, and proceeding from Articles 65 and 66 of the Credit Institutions Act and Article 24 Clause 1 of the Law of the Central Bank, a moratorium was imposed on ERA Pank (Business Register code No 10023410) from 7 October 1998.

Veli Kraav was appointed the moratorium administrator. The Decree also specified the tasks and rights of the moratorium administrator, as well as transactions and procedures ERA Pank is not allowed to perform without the prior written permission of the moratorium administrator. During the moratorium the administrator will submit written reports on his activity to Eesti Pank by the 5th of every month. The first report on ERA Pank's situation was submitted by the administrator on 15 October.

7 OCTOBER

Decision of the Board of Eesti Pank
On Imposing a Moratorium on ERA Pank

Having studied the materials on which the moratorium imposition was based, the Board of Eesti Pank agreed with the Decree of the President of Eesti Pank from 6 October 1998 on the moratorium and authorized the President of Eesti Pank to act in accordance with the Credit Institutions Act and the Law of Central Bank when ending the moratorium, depending on the financial situation and solvency of ERA Pank.

11 OCTOBER

Shareholders of Eesti Forekspank at their extraordinary meeting approved the proposal of the management on issuing 12 million new shares to Eesti Pank.

13 OCTOBER

Riigikogu (the Parliament) approved the members of the new Board of Eesti Pank: Ants Järvesaar, Kalev Kukk, Mati Meos, Hindrek Meri, Mihkel Pärnoja, Jüri Sepp and Erik Terk.

16 OCTOBER

Eesti Pank subscribed to the 12 million shares issued by Eesti Forekspank and paid EEK 120 million for them. The share capital of Eesti Forekspank now stands at EEK 173,681,740 and Eesti Pank owns 69% of it.

23 OCTOBER

Proceeding from Article 38, Clause 1, Section 2 of the Deposit Insurance Fund Act, the Board of the Deposit Insurance Fund decided to extend the guarantee to all foreign currency deposits retroactively from 1 October 1998. Previously, only deposits denominated in Estonian kroons and German marks were covered by the guarantee.