Opinion of the European Central Bank of 26 April 2010 on additional financial stability measures in Estonia (CON/2010/35)
Date: 2010-04-26
Institutions: European Central Bank
Subjects: Estonia, financial stability, financial supervision, monetary crisis, national law

EN 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 26 April 2010  

on additional financial stability measures in Estonia 

(CON/2010/35) 

Introduction and legal basis 

On 23 March 2010 the European Central Bank (ECB) received a request from the Ministry of Finance for 

an opinion on the draft law amending the Law on the financial supervision authority, the Law on credit 

institutions and the Law on the guarantee fund (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 and the sixth indent of Article 2(1) of Council Decision 98/415/EC of 

29 June  1998  on  the  consultation  of  the  European  Central  Bank  by  national  authorities  regarding  draft 
legislative  provisions1,  as  the  draft  law  relates  to  the  rules  applicable  to  financial  institutions  insofar  as 

they  materially  influence  the  stability  of  financial  institutions  and  markets.  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 

The draft law is aimed at fostering the necessary tools for handling a financial crisis and mainly regulates 

issues  within  the  competence  of  the  Financial  Supervisory  Authority  (FSA)  and  the  State.  Estonia 

adopted  the  first  measures  to  secure  the  stability  and  functioning  of  the  Estonian  financial  system  in 
March  20092.  The  draft  law  further  increases  the  efficiency  and  effectiveness  of  financial  supervision, 

also in the event of a financial crisis. The draft law allows for a faster exchange of information and makes 

it possible for the State to acquire shares of a credit institution in the public interest for fair compensation 

(expropriation),  if  this  is  necessary  to  safeguard  financial  stability.  Under  the  current  law,  a  credit 

institution may not be divided and the legal form may not be changed; however, the draft law establishes 

a  regime  for  the  division  of  a  credit  institution,  i.e.  the  transfer  of  assets  and  liabilities  to  one  or  more 

existing or newly created companies, if this is necessary to guarantee its financial soundness. Under the 

draft  law,  the  FSA  will  be  responsible  for  supervising  the  division  of  credit  institutions,  adopting 

proposals to impose structural changes to a credit institution’s organisational structure, requesting specific 

rehabilitation  measures  for  a  credit  institution  and  granting  temporary  exemptions  from  prudential 

requirements.  The  draft  law  also  introduces  changes  to  the  guarantee  fund,  resulting  mainly  from  the 

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2  

OJ L 189, 3.7.1998, p. 42.  
See Opinion CON/2009/18. All ECB opinions are published on the ECB’s website at www.ecb.europa.eu. 

 
 
 
 
                                                 
enhanced  requirements  under  Directive  94/19/EC  of  the  European  Parliament  and  of  the  Council  of 
30 May 1994 on deposit-guarantee schemes3. 

2. 

General observations  

2.1  The  ECB  welcomes  measures  that  strengthen  the  powers  of  competent  authorities  to  intervene 

when  the  stability  of  either  individual  credit  institutions  or  the  financial  system  as  a  whole  is 
jeopardised4.  The  financial  crisis  has  shown  the  importance  of  an  efficient  resolution  regime  and 

has  triggered  reflections  both  at  international  and  European  level  on  how  to  enhance  the 

instruments at the disposal of competent authorities in a crisis situation. In this context, the ECB 

welcomes the draft law’s measures to enhance the capability of a competent authority to respond in 
a  timely  and  effective  manner  in  the  case  of  a  solvent  credit  institution  in  distress5.  Another 
important aspect is enhanced information sharing and cooperation between competent authorities6. 

2.2  The ECB has assessed  measures related to the creation of ‘bad banks’, ‘good banks’ and ‘bridge 

banks’ and pointed out that such measures are welcome and are in line with current policies both at 

European and international levels for establishing a sound crisis resolution framework to intervene 
when  financial  institutions  have  a  systemic  impact  on  the  financial  system7.  Such  resolution 

framework is important in order to achieve the objective of ensuring the continuity of systemically 

important operations; this has been highlighted by the Eurosystem when replying to the initial ideas 
expressed by the Commission on a Union framework for crisis management and resolution8. The 

possibility to use a bridge bank is recognised as part of the trend towards enhanced convergence of 

national legal schemes for crisis management and resolution developing at both international and 

European level. In this context, the Estonian legal framework for crisis management and resolution 

may need to be further adapted taking into account future regulatory initiatives at Union level that 

aim to enhance the coordination of resolution and insolvency proceedings involving cross-border 

credit institutions. 

2.3  Additional  supervisory  tools  may  be  needed  to  handle  a  crisis  involving  cross-border  credit 

institutions.  The  greater  interdependencies  among  financial  systems  require  appropriate  action  to 
address  the  possible  systemic  impact  of  failing  cross-border  credit  institutions9.  Therefore, 

supervisory tools should be effective in order to manage problems arising from such a crisis. The 

ECB  emphasises  the  need  for  the  mutual  recognition  of  crisis  management  and  resolution 

proceedings  and  measures.  National  supervisory  authorities  should  work  closely  with  relevant 

home and host resolution authorities to resolve cross-border situations effectively. 

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9  

OJ L 135, 31.5.1994, p. 5. 
See for example paragraph 2 of Opinion CON/2009/65 and paragraph 3.2 of Opinion CON/2009/10. 
See also paragraph 2.3.2 of Opinion CON/2010/12. 
Paragraph 2.17 of Opinion CON/2010/10. 
Paragraph 3.1.1 of Opinion CON/2010/7. 
See  the  Eurosystem’s  reply  to  the  public  consultation  of  the  Commission  Communication  on  ‘An  EU  framework  for 
cross-border crisis management in the banking sector’ of 4 February 2010. 
Idem. 

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2.4  The draft law allows a credit institution to be divided. The FSA will have the right to carry out on-

site  inspections  of  the  acquiring  company  and  may  refuse  to  authorise  the  transfer  of  assets  and 

liabilities if the acquiring company is not subject to financial supervision. In this context, the option 

to divide credit institutions may be mainly useful under normal market conditions; it may take too 

much time to implement this solution in a crisis situation. However, these provisions are of general 

application and are not limited to financial crises.  

2.5  The  draft  law  provides  for  the  expropriation  of  credit  institutions’  shares  as  a  new  measure  to 

safeguard the stability of the financial system. The ECB welcomes the involvement of Eesti Pank 

and the FSA in this procedure. The proceedings leading to expropriation must be in line with the 
European  Convention  for  the  Protection  of  Human  Rights  and  Fundamental  Freedoms10  and 
decisions of the European Court of Human Rights11, and so comply with the principle that nobody 

may be deprived of their property except in the public interest and in accordance with the law. The 

ECB assumes that expropriation measures will only be taken in exceptional circumstances where, 

in compliance with the principle of proportionality, the seriousness of the measure is commensurate 
with the threat to financial stability12.  

2.6  Finally, the ECB reiterates that the financial support measures should not be applied to insolvent 
credit  institutions  and  the  pricing  conditions  should  be  risk-based  and  market-oriented13.  As  a 
general remark and in line with previous opinions14, the ECB reiterates the importance of ensuring 

that the regulatory practice under the proposed arrangements will be conducted in full compliance 

with  the  relevant  Union  law  provisions,  including  single  market  principles  and  financial  services 
legislation,  as  well  as  competition  and  State  aid  rules15.  Moreover,  remedies  to  handle  financial 
crises should be temporary in nature16. 

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European Convention for the Protection of Human Rights and Fundamental Freedoms, as amended by Proctocol No 11, 
Rome, 4 November 1950. 
7 November 2002, Olczak v Poland, No 30417/96 and 1 April 2004, Camberrow MMS AD v Bulgaria, No 50357/99. 
Paragraph 3.1.3 of Opinion CON/2010/7. 
Paragraph 3.2.1 of Opinion CON/2009/93 and paragraph 3.4.2 of Opinion CON/2009/18. See also the Recommendations 
of the Governing Council of the European Central Bank on the pricing of recapitalisations, 20 November 2008, available 
on the ECB’s website at www.ecb.europa.eu.  
See, for example, paragraph 3.4 of Opinion CON/2008/80. 
See  the  ‘Communication  from  the  Commission  –  The  application  of  State  aid  rules  to  measures  taken  in  relation  to 
financial  institutions  in  the  context  of  the  current  global  financial  crisis’  of  13  October  2008,  available  on  the 
Commission’s website at www.ec.europa.eu. 
Declaration of 12 October 2008 on a concerted European action plan of the euro area countries, available on the French 
Presidency’s website at www.ue2008.fr. See also point 3.1.1 of Opinion CON/2009/18.  

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This opinion will be published on the ECB’s website. 

Done at Frankfurt am Main, 26 April 2010. 

[signed] 

The President of the ECB 

Jean-Claude TRICHET 

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