The banking structures in Estonia, Latvia, and Lithuania were only established in the 1990s, following their independence from the former Soviet Union, and are still in the early stages of development. The initial years of banking sector operations were characterized by both robust growth and crises. Banks were forced to learn how to operate in a market-led environment and had to establish supervisory frameworks. Over the last decade, the three Baltic nations have built their supervisory and banking regulation systems virtually from scratch.

Financial supervision in Estonia is to be renewed by the end of 2002 and is currently undergoing complete restructuring. About three years ago, the Estonian authorities decided to combine supervisory functions for the banking, insurance, and securities sectors. This integrated "super-agency" will launch its operations in early 2002, and is to be staffed by some 50 to 60 people. The agency will be financed by contributions from participants, but initially, until 2004, the Bank of Estonia and the Estonian government will cover some of the costs of setting up the agency. The hope is that the combined supervisory authority will bring about overall improvement in supervisory standards, particularly for capital markets.

Latvian financial supervision commenced in July 2001. In 1997, with the support of the World Bank and the Swedish government, Latvia worked out a combined supervisory authority framework. Legislation in relation to this combined financial supervisory authority was passed in June 2000, and the new body began its operations, as scheduled, in July 2001. The mandate of the Financial and Capital Market Commission is to supervise the banking, securities, insurance, and pension fund sectors, as well as to administer deposit insurance funds. The commission’s objective is to promote the interests of investors, depositors, and insurance policyholders.

Lithuanian financial supervision is shared among three separate authorities. The Bank of Lithuania’s 68-person supervisory division is responsible for overseeing credit institutions, that is, banks, banking groups, and credit companies. The Securities Commission, established in 1992 through a Ministry of Finance initiative, oversees securities dealers. Its status was altered in 1996, when it was reestablished as an independent authority directly responsible to parliament. Finally, the State Insurance Supervisory Authority operates under the auspices of the Ministry of Finance. In December 2000 the Bank of Lithuania, the Securities Commission, and the State Insurance Supervisory Authority signed an agreement facilitating the the coordination and exchange of data. This cooperative agreement is particularly important, because unlike Estonia and Latvia, Lithuania has not contemplated combining the functions of the supervisory authorities within a single organization.