[25] Stability of the financial system requires sound banks and strict supervision – in particular under a currency board arrangement. Here, again, foreign factors were predominant. Over time, Estonian banks were taken over by foreign banks, mostly based in Scandinavian countries. Today, foreign banks hold about 85% of the banking system’s assets. [26] Fiscal policy was challenged as well.
Since restoring its independence in 1991, Estonia has pursued a prudent fiscal policy centred on the formal adoption of balanced budgets. Complying with this requirement was not easy. As Governor Müller just said: “Several decisions and reforms were taken at the time that were difficult and painful” [27].