EN ECB -PUBLIC  
 
OPINION OF THE EUROPEAN CENTRAL BANK  
of 2 February  2023  
on the phas e out of savings and loan associations  
(CON/20 23/3) 
 
Introduction and legal basis  
On 12 January  2023 the European Central Bank (ECB) received a request from  the Estonian Ministry of 
Finance for an opinion on a draft law amending the Law on savings and loan associations  (hereinafter the 
‘draft law’) . 
The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the 
Functioning of the European Union since the draft law contains provisions affecting the ECB’s  tasks 
concerning the prudential supervision of credit institutions pu rsuant to Article 127(6) of the Treaty . In 
accordance with the first sentence of Article 17.5 of the Rules of Procedure of the European Central Bank, 
the Governing Council has adopted this opinion.  
 
1. Purpose of the draft law  
1.1 As noted in the explanatory memorandum accompanying the draft law1, the main objective of the 
draft law is to increase the transparency of savings and loan associations and to ensure a more 
efficient protection of their  members , i.e. depositors, with a view to  phas e out savings and loan 
associations . 
1.2 U nder current Estonian law, commercial associations ( tulundusühistu)2 may generally  provide 
financial services either : (1) as savings and loan associations3; or (2) by obtaining a credit institution 
licence and functioning as an association bank4; or (3) by obtaining a licence for performing 
insurance activities  and functioning as an insurance association5.  
1.3 Under Estonian law , association banks are regulated as credit institutions and are subject to 
prudential supervision6. 
 
1 See p. 1 of the explanatory memorandum accompanying  the draft law.  
2  Commercial associations are a specific type of legal entit y the establishment, organisation and functioning of which is 
regulated by the Law on commercial associations  (Tulundusühistuseadus, RT I 2002, 3, 6) .  
3  See paragraph 5 (2) of the Law on creditors and credit intermediaries (Krediidiandjate ja -vahendajate seadus, RT I, 
19.03.2015, 4), paragraphs 5(1) and 5(7) of the Law on payment institutions and e- money institutions ( Makseasutuste 
ja e-raha asutuste seadus, RT I 2010, 2, 3 ), paragraph 40(1) of the L aw on securities market ( Väärtpaberituruseadus, 
RT I 2001, 89, 532) ,  
4   See paragraphs 3(1)  and 12(1) and paragraph  38 of the Law on credit institutions (Krediidiasutuste seadus, RT I 1999, 
23, 349).  
5  See paragraph  11(1) , paragraph  111 and p aragraph 15 of the L aw on insurance activities  (Kindlustustegevuse seadus, 
RT I, 07.07.2015, 1 ).  
6   See paragraph 3(1) of the L aw on credit institutions.  
ECB -PUBLIC  
2 1.4 Savings and loan associations are a specific category of commercial association whose legal status, 
activities and the procedure for  the foundation and dissolution  of which are set out in the Law on 
savings and loan associations7. Under the Law on savings and loan associations , savings and loan 
associations may conclude with their members the following transactions: (1) deposit transact ions to 
raise  savings and other repayable funds;  (2) loan transactions, including consumer credit, mortgage 
loans and factoring;  (3) lease transactions;  (4) intermediate securities, guarantees, benefits and 
earmarked repayable funds offered by foundations, structural funds or payment agencies founded 
by the European Commission or S tates that are contracting parties to the E uropean Economic Area 
Agreement or other similar persons , or by credit institutions, financial institutions or insurers ; (5) give 
advice regarding economic activities;  and (6) other transactions similar to the foregoing8. 
Additionally, savings and loan associations may perform currency exchange services , cash transfers 
and other payment services in accordance with the provisions of the Law on payment institutions 
and e- money institutions to unspecified persons (i.e. not its  members)9.     
1.5 Savings and loan associations are non- regulated financial institutions  that fall outside the scope of 
Directive 2013/36/EU of the European Parliament and of the Council10 (hereinafter  the ‘CRD’) . As 
noted in the explanatory memorandum, the r eason  for this non-regulation has so far been the 
understanding that members of savings and loan associations control and actively exercise 
supervision over the activities of the associations , which should function based on the principle of 
social control11. However, there have been problems with savings and loan associations , and many 
of them have introduced procedures that essentially exclude members from active supervision of, 
and participation in, the activities of savings and loan associations12.  
1.6 The draft law would ultimately phase out savings  and loan  associations under Estonian law following 
a three- step transition process . The first step, which  involves amendments that will enter into force  
following the draft law ’s adoption , includes  a prohibition on establishing new savings and loan 
associations  and, starting from 1 July 2023, a  prohibition on displaying interest rates on deposits in 
advertisements13. The purpose of the second step is to: increase  the transparency of savings and 
loan associations  and reduc e conflict of interest risks ; increas e the rights of savings and loan 
associations ’ members to receiv e information about the association s’ activities ; set limits on  the 
granting of credit to certain individuals ; specify the rules of authorisation to increase member 
participation in savings and loan associations ; increas e the minimum share capital ; and specify the 
rules for conducting audit reviews. These amendments are scheduled to enter into force on 
1 January  202414. As a third step, all savings and loan associations  would  be required to obtain a 
credit institution licence by 31 December 2027 in order to continue providing deposit -taking and 
 
7   Hoiu-laenuühistu seadus, RT I 1999, 24, 357 . 
8  See paragraph 6(1) of the L aw on savings and loan associations.  
9  See paragraph 6(2) of the L aw on savings and loan associations.  
10  See Article 2(5) , point (6), of Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on 
access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, 
amending Directive 2002/87/EC and repealing Directives 200 6/48/EC and 2006/49/EC (OJ L 176, 27.6.2013, p. 338) . 
11  See p.  1 of the explanatory memorandum accompanying the draft law.  
12  See pp. 1 and 2 of the explanatory memorandum accompanying the draft law . 
13  See paragraph  1, point 59 , and paragraph 5 , points 1 and 3 , of the draft law.    
14  See paragraph 1,  points 1  to 57, of the draft law regarding the amendments to the law on savings and loan associations,  
and paragraph 1,  point 58, of the draft law on the entry into force of the draft law.  
ECB -PUBLIC  
3 lending services  and would  thereafter continue operating as association bank s15. Alternatively, if a 
savings and loan association has not submitted a credit institution licence application,  or the 
competent authority has refused to grant such licence by that date,  the savings and loan association 
must cease to provide regulated financial services and terminate relevant  agreements according to 
their terms . Thereafter , it may continue operating as a regular commercial association without the 
right to accept deposits  and would have to obtain a licence or authorisation in order to provide any 
regulated financial services16. 
1.7 The draft law establishes a transition al period i n order to facilitate the phas e out of savings  and loan 
associations and to  enabl e them to apply for a credit institution licence. T he draft law prohibits 
savings and loan associations from accepting new members and from concluding new , or prolonging 
the validity of existing , deposit or consumer credit agreements  from 1 January 2026 and unt il they 
have obtained a credit institution licence. According to the draft law , savings and loan associations 
wishing to carry on deposit -taking and lending activities  must obtain a credit institution licence by 31 
December 2027. However, i f an association has submitted a credit institution licence application and  
the competent authority  has not decided on such  application by 31 December 2027, the association  
may continue operating,  and will not be deemed to be operating without a licence within the meaning 
of the Estonian Penal Code. However, such a savings and loan association may not  conclude new 
contracts or prolong existing contracts for providing certain specified services or accept new 
members  as from 1 January 2028 until it has receiv ed a credit institution licence.  The Law on savings 
and loan associations  is scheduled to become invalid on 1 January 2028.  
1.8 The draft law also proposes certain technical amendments to the Law on credit institutions  aimed at 
specifying and clarifying the treatment of association banks. Among others, the draft law  specifies 
the number of management board members of an association bank  and the procedure for becoming 
an association bank’s management board member17.  
1.9 Finally, the draft law reduces the minimum initial capital requirement applicable to association banks 
from the current EUR 5 million to EUR 1 million in line  with Article 12(4) of the CRD18. According to 
the explanatory memorandum,  the aim of reducing the initial capital requirement of association banks  
is to incentivise the development of association banking in Estonia19. 
 
2. General observation s 
 The ECB notes that, within the framework of the Single Supervisory Mechanism (SSM) , which is  
composed of the ECB and the national competent authorities, including the Estonian Financial 
Supervisory Authority (FSA), the ECB is, in accordance with all relevant Union law ( and Estonian 
legislation transposing Directives),  exclusively competent to carry out, for prudential supervisory 
 
15  See paragraph 1 , point 58, of the draft law.  
16  See p.  4 of the explanatory memorandum accompanying the draft law.  
17  See paragraph 3 of the draft law.  
18  See paragraph 3 , point 8 , of the draft law.  
19  See p. 37, paragraph 8 of the explanatory memorandum accompanying the draft law.  
ECB -PUBLIC  
4 purposes, the tasks of authoris ing credit institutions and withdraw ing authorisations of credit 
institutions20.  
 
3. Specific observations on the draft law’s provisions lowering the initial capital requirements 
for association banks  
3.1 Under  the CRD, Member States may grant authorisation to particular categories of credit institutions 
with initial capital of less than  EUR 5 million , subject to the condition , inter alia, that the initial capital 
is no less than EUR 1 million21. The CRD does not authorise Member States to introduce a lower 
initial capital requirement than EUR 5 million for all credit institutions , but only for particular categories 
of credit institutions . The draft law provides for a EUR 1 million initial capital requirement only for 
association banks. The ECB understands that association banks are a particular category of credit 
institution as they can exist only in the specific legal from of a commercial association22,  must be 
established by at least 50 persons23, and irrespective of the amount of capital contributed by any 
member to the share or initial capital of an association bank, each member of an association bank 
has one vote at the general meeting of an association bank24. However, the ECB understands that 
Estonian law does not limit the range of services that an associ ation bank  may provide, and that  
association banks may provide the same range of services as credit institutions established as public 
limited companies ( aktsiaselts ).     
3.2 While, from a legal perspective, the provisions  of the draft law enabling association banks  to be 
established with a  minimum  initial capital of EUR 1 million may not contravene the CRD , the ECB 
cautions that a combination of a potentially large number of new entrants to the banking market of  a 
rather limited size and relatively low capital levels could lead to increased risks. Therefore, t he ECB 
encourages the Estonian legislator to  thoroughly consider whether lowering the initial capital 
requirement for association banks to  EUR 1 million is a good legislative choice in terms of policy for 
the banking market.   
3.3 If the lower initial capital requirement is implemented , the ECB would, upon assessing the licencing 
applications of such association banks,  consider it prudent to requir e applicants to always prepare 
an exit plan,  which should be a prerequisite for the grant ing of authorisation.  Furthermore, given that 
the initial capital requirement is aimed at various risks primarily related to the provision of various types of banking and investment services which licenced credit institutions are permitted to provide, 
the ECB suggests to consider whether it would be advisable to limit the range of services that 
association banks with lower initial capital may provide in order to better manage the risks in the 
banking sector.  
3.4 Furthermore, a credit institution must  comply with the own funds requirements as set  by the relevant 
applicable EU and national law , including  Regulation (EU) No 575/201 3 of the European Parliament 
 
20  See Article 4(1) , point (a) , of Council Regulation (EU) No 1024/2013 of 15 October  2013 conf erring specific tasks on 
the European Central Bank concerning policies relating  to the prudential supervision of credit institutions (OJ L 287, 
29.10.2013, p. 6 3). 
21  See Article 12(4) of the CRD.  
22  See paragraphs 3(1)  and 12(1) and paragraph 38 of the L aw on credit institutions . 
23  See paragraph 39(1) of the L aw on credit institutions.  
24  See paragraph 43 of the L aw on commercial associations.  
ECB -PUBLIC  
5 and of the Council ( the ‘CRR’)25. The amount of own funds required at authorisation is determined 
on the basis of an entity's business plan and the risks that it intends to undertake during the first 
years of operations26. Hence, the ECB considers that , in most cases concerning specific credit 
institutions , own funds in addition to the minimum initial capital of EUR 1 million will be necessary to 
establish the business of a credit institution and obtain authori sation27.  
 
4. S pecific observations  on the transitional  period provided for in the draft law  
The ECB welcomes the establishment of a transitional framework  for the gradual  phas e out of 
savings and loan associations  and to direct them towards applying for a credit institution licence or 
ceasing to provide regulated banking services28. Providing sufficient time for existing savings and 
loan associations to apply for a credit institution licence is vital to give the ECB, sufficient time to 
conduct , in cooperation with the FSA29, a thorough analysis and scrutiny of any credit institution 
licence applications  received. In this respect, t he ECB understands that  it would be required to decide  
on the credit institution licence application within six months following  the receipt of all the necessary 
documents and information which meet the requirements  of the law , and no later than within twelve 
months following  the receipt of the licence  application30.  
  This opinion will b e published on EUR -Lex.  
  Done at Frankfurt am Main, 2 February 2023. 
 
[signed]  
 
The President of the ECB  
Christine  LAGARDE  
 
25  Regulation (EU) No 575/201 3 of the European Parliament and of the Council of 26 June 2013 on prudential 
requirements for credit institutions and amending Regulation (EU) No 648/2012 (OJ L 176, 27.6.2013, p. 1). 
26  The full methodology applied to calculate the own funds required at authorisation is detailed in the ECB’s Guide to 
assessments of licence applications,  paragraph 5.1,  available at  
https://www.bankingsupervision.europa.eu/ecb/pub/pdf/ssm.201901_guide_assessment_credit_inst_licensing_appl.
en.pdf . 
27  See paragraph 2.9 of Opinion CON/2021/7. All ECB opinions are published on EUR -Lex. 
28  See paragraph 1 points 58- 60 of the draft law  supplementing the Law on savings and loan associations with 
paragraphs 471, 472 and 49.  
29  See Articles 73 -79 of Regulation (EU) No 468/2014 of 16 April 2014 establishing the framework for cooperation within 
the Single Supervisory Mechanism between the European Central Bank and national competent authorities and with 
national designated authorities (SSM Framework Reg ulation) (ECB/2014/17) (OJ L 141, 14.5.2014, p. 1).  
30  See paragraph 14(1) of the L aw on credit institutions, implementing the deadlines foreseen in Article 15 of the CRD.