Management of financial crises

The goal of institutions responsible for the country's financial stability is to avoid financial crises. However, even with excellent crisis prevention a certain probability remains for the emergence of a crisis. Failures in the operation of the financial system may arise very unexpectedly and spread quickly to other markets and market participants. Since a financial crisis may entail large costs to the community, it is essential that state institutions be well prepared for these situations.

The duties of Eesti Pank, the Financial Supervision Authority and the Ministry of Finance, as well as the grounds for joint action in case of a financial crisis are provided for in the cooperation agreement on the management of financial crises. The agreement emphasises the primary responsibility of bank owners and management in fortifying a bank's financial strength and incurring the losses resulting from a crisis.

The Estonian financial system is closely integrated with international financial markets. Therefore, international cooperation for avoiding and solving crises has a very important role. Eesti Pank has concluded multilateral cooperation agreements with institutions responsible for the financial stability of the European Union member states and the Nordic-Baltic countries as well as a cooperation agreement with the central banks of Sweden, Latvia and Lithuania.

An important part of the crisis management framework is crisis training. Eesti Pank arranges and participates in domestic as well as cross-border crisis drills with other state institutions responsible for financial stability.

An essential part of the Estonian crisis management framework is the deposit guarantee framework. Its purpose is to protect the funds of small depositors and investors, thus improving the financial sector's credibility and stability (for more information, see Protection of small depositors and investors).