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1999–2004: Integration with the banking framework of the European Union and preparations to join the European Union

From 1999-2004 Estonia moved from being a candidate country to an acceding country of the European Union and to finally becoming a Member State. One of the institutions responsible for accession negotiations was Eesti Pank. The central bank played a significant role in preparing subjects dealing with the free movement of services and capital, the Economic and Monetary Union, institutions and statistics.

1 January 1999

The currencies of 11 Member States of the European Union, incl. the underlying currency of the Estonian kroon – the German mark – are irrevocably tied to one another on 1 January 1999 and the euro, the single currency of Europe, is issued. At the beginning of 1999 a new procedure for purchase and sales transactions of foreign currencies between Eesti Pank and banks operating in Estonia comes into effect. Eesti Pank starts entering into purchase and sales transactions for the euro and the Estonian kroon with banks operating in Estonia without a price spread.

June 2000

Vahur Kraft is appointed as the Governor of Eesti Pank for a second term.

January 2002

An independent financial supervision institution – the Financial Supervision Authority – commences work at Eesti Pank. The primary function of the authority is to ensure that financial institutions are able to perform obligations to clients (pay deposits, insurance losses, funded pensions etc.). These functions have previously been performed by the Banking Supervision of Eesti Pank and Insurance Supervisory Authority and Securities Inspectorate under the area of administration of the Ministry of Finance.

Eesti Pank launches an interbank settlement system meeting international requirements. The new system consists of two sub-systems: a settlement system for retail payments and a real-time settlement system for urgent payments.

July 2002

To make the safety net of the financial sector more efficient and increase the trust of small savers and investors in the financial sector, in addition to guaranteeing deposits, the Guarantee Fund also starts to provide protection to investors and people investing in mandatory funded pensions.

December 2002

The European Union submits a formal invitation to join the EU to ten candidate countries, including Estonia. The Treaty of Accession is signed in Athens on 16 April 2003 and enters into force on 1 May 2004.

1 March 2003

Technical changes harmonising accounting for the reserve requirement of Estonia and the Eurosystem framework are implemented by a resolution of the Supervisory Board of Eesti Pank of 31 October 2002. As in the Eurosystem, Estonia also introduces two substantial reserve requirement ratios: a general ratio for liabilities with up to two years of maturity and a special ratio for liabilities with longer maturities and repurchase agreements.

A repurchase agreement is essentially a loan granted against collateral securities.

Example. Your share portfolio consists of 2000 shares of Harju Elekter. You feel that the shares of Baltika are undervalued and you expect a rise in the market prices in the near future. You have no available funds to purchase shares in Baltika, but you do not want to give up your shareholding in Harju Elekter either. A solution is a repurchase agreement under which you sell your shares of Harju Elekter to a bank according to an agreement that you will repurchase them at a certain time at a specified price, and you get the funds required for the purchase of the shares of Baltika from the bank.

September 2003

A referendum is held in Estonia. 66.9% of voters support accession to the European Union. This also means support for Estonia’s accession to the euro area and for the introduction of the euro.

2004

The European Union single passport principle is introduced in Estonian banking. Accordingly, instead of the obligation to apply for a banking licence, a notification obligation is established for a branch of a credit institution operating in another Member State.

Estonia’s accession to the European Union entails changes in banks’ prudential rules harmonising requirements with the rules of the European Union.

January 2004

In addition to a domestic account number, Estonia introduces the IBAN – the International Bank Account Number standard. This helps to accelerate international payments.

1 May 2004

Estonia joins the European Union. Eesti Pank becomes a member of the European System of Central Banks and, after making a capital contribution to the European Central Bank, one of the owners of the European Central Bank.

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