Other systemically important institutions buffer

The aim of the other systemically important institutions buffer is to increase the resilience of systemically important market participants. Their importance may stem from their size, their complexity or their interdependence with other participants in the financial system.

Eesti Pank has named four banks as systemically important credit institutions: Swedbank AS, AS SEB Pank, Luminor Bank AS and AS LHV Pank. Swedbank AS, AS SEB Pank and Luminor Bank AS are subject to an O-SII buffer requirement of 2% and AS LHV Pank of 1%. The buffer requirement applies to the total risk exposure of systemically important credit institutions, and must be met by common equity tier 1 own funds.

The reason for introducing the other systemically important institutions buffer is the high level of concentration in the Estonian banking sector, where the four systemically important banks hold roughly 85% of the total assets of the banking sector with a value equal to over 90% of GDP. Furthermore, the structure of the assets and liabilities of the biggest banks is similar, and so they are vulnerable to the same sort of risks. The additional buffer will help reduce the negative impacts that possible financial problems at one systemically important bank could cause for the functioning of the financial system and for the real economy.

Eesti Pank assesses the systemic importance of credit institutions each year and updates the list of credit institutions that are important to the domestic financial system. Eesti Pank uses the guidelines issued by the European Banking Authority (EBA) for its assessment, and also considers the specific features of the Estonian financial system.

See The principles for identifying the systemically important credit institutions in Estonia and calibrating the buffer rates