Financial supervision

The second principal aim of the Bank is financial supervision of the activity of credit institutions. This is the particular task of the Banking Supervision Department whose independence within the central bank is guaranteed by the Bank Act and its statutes.

Although the general principle of the supervisory activity derives from the necessity of ensuring the stability of the monetary system, the supervision still concentrates, in contrast to monetary policy, on individual banking institutions. In order to safeguard financial stability and the interests of creditors, the supervision procedures support the stability and credibility of the banking sector, and at the same time check the efficiency and profitability of the banks. The Supervision Department works with both on-site supervision and the establishment of a regulative framework (e.g. prudential ration).

The aim of the prudential ratios is to ensure protection against assumed risks: the risks taken in different fields of activity must be reflected in the banks’ capital and liquidity reserves. The regulations governing Estonian credit institutions generally correspond to the European Union requirements. Considering the possible risks associated with the rapidly developing banking systems, some norms are even somewhat stricter than usual.

Within the market economy, the Estonian credit institutions are independent in their business activities and bear full responsibility for the results; the supervision does not aim to replace the banks’ management or limit the disciplinary impact of the market, but to reduce the expenditure to society caused by possible financial crises.

Consolidated supervision of banking groups is also gaining ground, and cooperation between different supervisory bodies has become more efficient.

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