We use cookies to customise content for your subscription and for analytics.
If you continue to browse the International Law Office website, we will assume you are happy to receive all of our cookies. For further information please read our Cookie Policy.

Additional safety net for Estonian financial system - International Law Office

International Law Office

Banking - Estonia

Additional safety net for Estonian financial system

February 11 2011

In the middle of the financial crisis the Estonian government made a principled decision to provide existing financial regulation with an ultima ratio (last resort) option of nationalising credit institutions (ie, banks) in order to secure the stability of the financial system and avoid chaos. On January 1 2011 the amendments to the Credit Initiations Act entered into force, setting forth the respective legal framework.

The amendments enable the state to nationalise a shareholding in a credit institution if the Financial Supervision Authority has reasonably found that the major credit institution cannot be saved through regular mechanisms found in the 'supervisory toolbox'. To be more specific, the nationalisation process may be commenced if:

  • a credit institution fails to comply with a substantial part of the existing standards;
  • shareholders refuse to cooperate with state institutions; and
  • other financial authority administrative measures do not serve the purpose.

Pursuant to the amendments, the Ministry of Finance would initiate the nationalisation process. Before commencing the process, the ministry would be obliged to consult with the Bank of Estonia (the Central Bank) and the Financial Supervision Authority. At the final stage the government would decide on the fair price payable to shareholders for their shareholding subject to nationalisation.

Nationalisation is an emergency last resort for distressing the financial system; it is hoped that it will remain in the supervisory toolbox as a tool that will never need to be used. However, the option of nationalisation at least provides the Estonian financial system with an additional safety net.

For further information on this topic please contact Priit Pahapill at Luiga Mody Hääl Borenius by telephone (+372 665 1888), fax (+372 665 1899) or email (priit.pahapill@lmh.ee).

Comment or question for author

ILO provides online commentaries as specialist Legal Newsletters. Written in collaboration with over 500 of the world's leading experts and covering more than 100 jurisdictions, it delivers individually requested information via email to an influential global audience of law firm partners and international corporate counsel. Please click here to register for the service.

The materials contained on this website are for general information purposes only and are subject to the disclaimer.

ILO is a premium online legal update service for major companies and law firms worldwide. In-house corporate counsel and other users of legal services, as well as law firm partners, qualify for a free subscription. Register at www.iloinfo.com.