Minister: Guarantee fund shield to apply to savings and loan associations
The Ministry of Finance is working on an amendment to render the activities of savings and loan associations more transparent and extend to them guarantee fund protection.
The guarantee fund that currently insures individuals' bank deposits for up to €100,000 would work for savings and loan association deposits "in exactly the same way it works for banks today," Minister of Finance Annely Akkermann said in a press release on Thursday evening.
Deposit insurance has been mandatory for all banks since 1998, with the fund kept flush by commercial banks themselves.
The ministry also said that there will be greater auditory control of savings and loan associations, with major associations to be subjected to FSA control.
"Unlike banks, savings and loan associations are not under constant control today and their deposits are not guaranteed. Unfortunately, many people are unaware of this fact," Akkermann said. "We need tougher rules to protect people's deposits."
The finance minister explained that depositors will also get the right to access more information about their assets, including the association's loan clients. The ministry wants members of savings and loan associations to be more proactive by giving them the right to elect their own representatives.
The bill aims to restrict associations' lending practices by limiting lending to other financial institutions, prohibiting advertising of interest rates and creating clear groundwork for how to measure the credit worthiness of potential borrowers.
The ministry has met with savings and loan associations and recently consulted with the Financial Supervision Authority and the Bank of Estonia to find a solution that would work for everyone.
The amendment aims to give depositors confidence without suffocating savings and loan associations.
A transition period will follow the amendment's entry into force to give associations time to make the necessary changes. Changes will take effect in 2024 at the earliest.
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Editor: Marcus Turovski