EU supervisory body recommends union-wide reciprocation of Estonia's bank buffer rate
The European Systemic Risk Board (ESRB), a banking sector supervisory body established in December 2010 in response to the financial crisis of the preceding years, has recommended EU-wide reciprocation of Estonia's systemic risk buffer rate.
On Monday the ESRB published a recommendation for the EU-wide reciprocation of Estonia's one-percent systemic risk buffer rate to ensure that it applies not only to domestic banks but also to branches of foreign credit institutions and EU banks' direct cross-border exposures to Estonia, the oversight body stated in a press release.
In April, the Bank of Estonia requested that the ESRB recommend to other member states the reciprocation of the one-percent systemic risk buffer rate that Estonia requires its banks to maintain. After considering the cross-border implications, the ESRB decided in June to include the Estonian measure in the list of macroprudential policy measures other member states are recommended to reciprocate.
The Estonian central bank introduced a systemic risk buffer requirement to all commercial banks in 2014. The aim of the measure was to make banks in Estonia maintain bigger reserves and thereby improve their resilience to sharp economic decline and reduce risks arising from the concentrated banking structure.
At the beginning of August, the systemic risk buffer rate in Estonia was lowered by one percentage point, from two percent to one percent. At the same time, the buffer rate applied to Swedbank and SEB Pank as systemically important banks was instead raised by one percentage point to three percent.