Jaak Tõrs: On the finance ministry clearing up the savings and loans mess | Opinion

If one enters savings and loans associations in English as an internet search term (Estonian: Hoiu-laenuühistu), one will most likely be presented with texts covering crises hitting such institutions, particularly the crisis in the US, 40 years ago, which absorbed over US$100 million in taxpayers’ money. The crisis was linked to inadequate risk management.

The solution to that crisis was found in legislative amendments adopted by the US Congress, which improved the financial supervision of such savings and loan associations, and extended the scope of deposit insurance in a similar way to that of banks.

In Estonia, two particular savings and loan associations have run into difficulties in recent years, with those who have invested money in them standing to lose their savings.

Although several experts, including at the Bank of Estonia, have already drawn attention to the possible issues, these cases represent a serious alarm call as to the fact that one aspect of the financial sector in Estonia is weakly regulated, and is essentially not subject to financial supervision and lacks deposit insurance.

This renders plans on the part of the Minister of Finance to clean up this sector as highly correct, to ensure that even more customers do not lose their deposits.

Savings and loan associations have been operating in Estonia since the restoration of independence (in 1991-ed.). They were originally made up of community-based financial institutions operating in a small area or areas,…