ABSTRACT
This chapter explains the factors affecting the formation of the regulatory practices and to understand the implications of the alignment with the European Union (EU) banking regulation for financial supervision. The analysis of banking regulation will be undertaken within the conceptual framework of Europeanization and the institutionalist tradition. It presents a brief overview on the current theoretical literature and presents the analytical framework for understanding the dynamics in regulatory and supervisory practices. The chapter presents the development of Estonian banking legislation to be followed by the sections discussing the factors affecting it and the implications for the banking sector supervision. Estonia introduced the institution of deposit guarantee and adopted a European-type Credit Institutions Act 1999, based on the EU banking directives and materials from the Basel Committee on Banking Supervision. The Bank of Estonia followed the recommendations of the Basel Committee on Banking Supervision, but later the requirements of the EU directives in elaborating prudential ratios.
