Chapter 3

A Memorandum of Understanding (MoU) on financial stability, crisis management and crisis resolution was signed by the ministries of finance, central banks and financial supervisory authorities of Denmark, Estonia, Finland, Iceland, Latvia, Lithuania, Norway and Sweden in August 2010. Its establishment was in line with a 2008 EU-wide agreement that countries sharing financial groups should provide for specific and detailed crisis-management procedures.

The Nordic-Baltic MoU stands out for three reasons when compared with other memoranda of this kind. First, it engages ministries of finance along with central banks and supervisory agencies. This is crucial for coordinating action on resolution and burden sharing of fiscal costs arising from any intervention in individual banking institutions. Second, it establishes a permanent regional body – the Nordic-Baltic Cross-Border Stability Group (NBSG) – to examine financial stability issues, including during crisis times. Lastly, one of the tasks of the NBSG is to work out ex ante burden-sharing formulas.

Within Europe this agreement represents the best example to date of attempts to integrate cross-border supervisory efforts and prepare for cross-border crisis resolution (two intricately linked areas). The establishment of the NBSG has improved supervisory coordination and information sharing. By building relationships and rehearsing cross-border crisis responses in advance, it could also improve cooperation in a crisis even though the MoU lacks the power to legally commit the parties to a specific course of action. Whether or not it is successful in this regard remains to be tested.