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BNS - The Bank of Estonia and Riksbank, the central bank of Sweden, on Friday signed a precautionary arrangement to secure financial stability and promote confidence on the financial markets.
Under the agreement, the Bank of Estonia may borrow up to 10 billion Swedish kronor against Estonian kroons. The precautionary arrangement enhances the capabilities of Eesti Pank to provide liquidity under the currency board arrangement, the Bank of Estonia said in a press release.
The central bank explained to BNS that work to prepare the agreement started a year ago but a pause in it occurred as a result of the international financial crisis. The agreement is not linked to the global economic crisis, the Bank of Estonia said.
"Since the banks active in Estonia mainly are part of Swedish banking groups, the agreement enables to provide additional liquidity support for the financial sector in collaboration with the central bank of Sweden. The size of the agreement, 10 billion Swedish kronor, is based on the estimated potential need for liquidity," the central bank said.
"The agreement has been drawn up as a preventive measure to strengthen Bank of Estonia's ability to safeguard financial stability in Estonia," Bank of Estonia governor Andres Lipstok was quoted as saying.
"By signing this agreement the bank of Estonia has enhanced its capabilities to safeguard financial stability, in particular a liquidity provision, under the currency board arrangement. The precautionary arrangement with Riksbank is an additional safeguard on top of high liquidity and capital buffers that Swedish banks' Estonian subsidiaries and branches already have. The agreement we signed with Riksbank today demonstrates also the importance of cross-border cooperation in a world of integrated financial markets" Lipstok said.
Erkki Raasuke, chief of Baltic banking at Swedbank, would not comment on the agreement, saying he cannot do it without knowing the details.
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