Estonia"s emerging financial system : progress and prospects

Each report examines the macrofinancial environment; the functions of central banks, including bank regulation and supervision; the future role of state banks; the development of banking services; capacity development in the banking system; and the role of donors. A synthesis report was also prepared to draw common findings and lessons from the four country studies (PN-ABS-282). This particular study highlights two important policy decisions that the Estonian central bank has taken to set a firm context for future development: (1) the decision to establish the currency board which helped to establish confidence in the currency and dealt swiftly with inflation; and (2) the government"s strong response to the banking crisis which injected prudence into the banking system far more effectively than many alternative policies would have done. At the same time, weaknesses remain which need to be addressed, including continued containment of the banking crisis to build public confidence, improving the quality and quantity of retail banking services for individuals, developing the money market and other forms of interbank cooperation, improving the legal foundation for secured lending, and improving the skills of bank staff and management. The report concludes with observations and recommendations for U.S. government assistance. (Author abstract)