Bank Account Holders in Estonia: Protect Your Account Balance and Qualify for Deposit Insurance Repayment When Banks Fail or Stop
The Republic of Estonia is a Northern European country in the Baltic region. The strong, stable and advanced economy is known for its ease of doing business, almost non-existent public debt and a flat tax rate regardless of personal income. The Tiigrihüpe project allocated public funds to develop and expand the IT infrastructure and later advance technological literacy and digital competence. E-Estonia gradually transitioned from a fast, simple and efficient domestic matter into an innovative digital society with global potential.
A liberal trade regime and an inviting attitude towards foreign direct investment is furthered by a transparent government and public policies. High levels of economic freedom are supported by an independent and efficient judicial system. Public efficiency in Estonia is visible throughout society by the provision of free education and universal health care.
The Estonian Economy and Financial Sector
A balanced budget is required by the constitution. To prioritize the private sector, most state-owned firms have been privatized with only the port and main power plants remaining in public hands. In regard to the environmental agenda, economic circularity plays an important role in sustainability. Sustainability plans are developed in line with the operational efficiency of society. The main economic sectors in Estonia include energy, telecommunication, banking, trade and transportation. More than half of the workforce is employed by the service sector.
There are 15 licensed and supervised credit institutions within the substantive financial sector. These financial institutions serve 2 million private customers and about 300.000 corporates by serving the local market, traditional international activities, and the growing global clientele of the e-residence sector. In general, consolidation at group level allows for institutional efficiency furthered by large spreads between income and expenses while deposits grow faster than debt liabilities.
Financial technology (FinTech) combines technology and innovation in financial services to compete with traditional financial services. The Estonian e-infrastructure utilized decentralized, distributed systems and blockchain to advance accessible and efficient FinTech services. Successful Estonian FinTechs include Monese and Wise, the latter being a privately owned unicorn startup company valued over a billion euro.
Eesti Pank is the (central) bank of Estonia. Its primary aim is to maintain price stability. Among other things, an important function of Eesti Pank is to promote the stability of the financial system and to exercise macro-prudential supervision over the financial system. The structural and operational reliability of the payment system is thus protected whilst its sustainability contributes to economic growth. In spite of solid capital and liquidity buffers, corporate credit remains weak and risks related to cross-border and international banking (including AML-CFT) are significant.
Financial Intermediation and Bank Regulation
The domestic financial system in Estonia is dominated by privately owned commercial banks. These commercial banks intermediate between savers and borrowers and act as securities firms to match issuers of notes, bonds and other equity and investors. Healthy margins are strengthened by operational and institutional efficiency. Nevertheless, bank profitability is threatened by conduct risks, primarily associated with international clients and anti-money laundering provisions.
While financial stability metrics are strong, concerns about abuse of the financial system persist. As a member of the Eurozone and the Eurosystem, uniform bank regulation applies. This Single Supervisory Mechanism is subject to the European banking regulatory framework, which follows the Basel Accords and is harmonized through the single rulebook. This framework applies to all financial institutions in the Single Market and includes the single rulebook, capital requirements, recovery and resolution, and deposit guarantee schemes. Local regulation is laid down in the Bank of Estonia (Eesti Pank) Act, the Credit Institutions Act, and the Money Laundering and Terrorist Financing Prevention Act.
The Virtual Government and its e-Residence Program
Nearly all public services are available online in Estonia. Scalability of several aspects of the e-government allowed people from all around the world to become digital residents of Estonia. It is important to note that digital residency does not grant citizenship, tax residency, a residence permit, or permission to enter Estonia. It merely allows location independent professionals, virtual entrepreneurs and other international business people to use an advanced, safe and well-established framework to conduct business activities.
The objective of the innovative e-Residency program are to unlock the entrepreneurial potential of every world citizen. The program does not directly impose taxes on e-residents but merely advances the potential for local service providers and the economic size of the country. Tax treaties aim to avoid double taxation. Since corporate taxes are payable to the country where business value is created or where the board is situated, the program does not seek to compete with its tax system.
Statutory Intervention, Bank Resolution and Termination of Authorization
The Financial Supervisory Authority (FSA) may intervene and place a supervised credit institution under administration when its actions significantly damage the interests of depositors, investors, the public interest and other stakeholders. Depending on the seriousness of the offense, the FSA can force the troubled institution to reorganize, or terminate or revoke its authorization. A moratorium is placed on the activities and transactions of the bank.
Justification for statutory intervention is found in financial or institutional reasons. The objective is to limit adverse consequences for all stakeholders. It is preferable to restart operations as soon as possible. To meet regulatory minimums, shareholders may be requested to inject additional capital. Alternatively, reorganization of the activities is imposed following the EU-wide Bank Recovery and Resolution Directive (BRRD). Closure of the bank follows the termination of activities and the revocation of the license of the bank. The creditor and insolvency hierarchy then applies to reimburse account holders.
Bank Deposit Protection in Estonia
Bank customers entrust their short-term savings and income to financial institutions for withdrawal on demand. Banks bundle these deposits to offer long-term loans to other economic actors. The relationship between the bank and its customers is governed by contract law. Unlike what most people believe, this relationship does not fall under the concept of agency (principle and agent). Instead, bank deposits belong to the bank and the depositor has a contractual claim against the bank. This position is irrelevant for as long is the bank is operational and savings are accessible. It becomes problematic when banks fail or are likely to fail and a moratorium is imposed on all transactions. Regulators seek to overcome these risks for bank depositors and investors by implementing recovery and resolution planning, and deposit guarantee schemes.
The Guarantee Fund Act regulates bank deposit protection in Estonia. The Act established the Deposit Guarantee Sectoral Fund. The fund is responsible for the collection of premiums paid by FSA licensed credit institutions, administration of the deposit guarantee scheme and reimburse eligible creditors when a deposit compensation event occurs. The Guarantee Fund shall notify depositors within two business days. With the decision of the supervisory board of the Guarantee Fund, compensation for deposits is to be paid out through one or several Estonian or foreign credit institutions. Compensation of deposits shall end within 7 business days of the date when deposits became unavailable.
Deposit protection in Estonia applies to account balances held by eligible account holders at FSA licensed credit institutions. Standard DGS coverage, including accumulated interest, shall not be larger than 100,000 euros. Additional compensation in the amount of 70.000 euro is available for retail customers who have sold their private immovable property within 6 months prior to the closure of the bank.
Asset Recovery for Ineligible and International Creditors
The Deposit Guarantee Sectoral Fund of Estonia exclusively applies to bank deposits and investments held at supervised investment institutions. Eligible bank accounts are protected up to 100.000 euro, with an additional 70.000 euro for temporarily covered balances. Investments are separately compensated in full but compensation shall not exceed 20.000 euro. Some creditors and activities, however, are ineligible for deposit protection in Estonia.
Excluded from deposit protection in Estonia are public authorities, credit and financial institutions, investment firms, credit intermediaries , e-money and payment institutions. Also excluded from coverage are deposits the owner of which has outstanding liabilities to the same credit institution, to the extent of such liabilities shall not be compensated for out of the Sectoral Fund; Deposits the owner of which cannot be identified by the credit institution shall not be compensated for out of the Sectoral Fund; and Deposits in connection with which a judgment of conviction has been made for money laundering shall not be guaranteed out of the Sectoral Fund. Compensation for a deposit in connection with which a criminal proceeding relating to money laundering has been commenced shall be suspended until the entry into force of the court judgment.
Winding up of the failed institution requires the assets and liabilities of the bank to be discharged. Creditors are repaid following the creditor and insolvency hierarchy referred to in the Bankruptcy Act. The priority of claims indicates a separation between secured and unsecured claims. Prioritized claims are paid in full. These include claims secured by a pledge and claims by the Guarantee Fund. Unsecured creditors, including bank account holders, are reimbursed from the remaining proceeds, often triggering a write-down of the outstanding balance.
Deposit insurance provides external protection for otherwise unsecured account holders. Traditional rules of bank liquidation further reimburse creditors and other claimants. As a result, creditors seeking special treatment must demonstrate their claim outside the parameters of applicable banking laws. Arguments and individual positions must override the binding rules outlined in the bank resolution framework. Only in exceptional circumstances is this possible.
Contact us for More Information and to Discuss Your Case…
This website is an initiative of Legal Floris LLC. We assist international creditors recover money when their bank fails or their investments disappears. Due to our vast experience in bank failures in different countries, we are able to maximize repayments and minimize risks for our clients. Contact us right now to find out how we can help you too to reclaim your account balance if your bank in Estonia stops operating:
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