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Estonia’s Central Bank Plans to Raise Reserves to Cut ECB Risks

April 10 (Bloomberg) -- Estonia’s central bank said it must boost reserves by 3 1/2 times in the long term to reduce the risks of participating in European Central Bank measures to tackle the region’s debt crisis.

Eesti Pank plans to increase its equity capital to 1.31 billion euros ($1.72 billion) from 370 million euros, raising its equity relative to the total for euro-area central banks to 0.26 percent, the same as its relative ECB contribution, its board said today in an e-mailed statement from Tallinn, the capital.

“The volume of Eesti Pank’s risk assets has significantly increased due to the financial crisis in the euro zone,” the board said. “The central bank’s risks have increased and the bank’s reserves must match those risks.”

The ECB’s decision to issue three-year loans to commercial banks has heightened risks to regional central banks’ balance sheets, Deputy Governor Ulo Kaasik said March 28. Estonia adopted the euro last year.

The bank won’t contribute more than a quarter of its annual profit to the state budget until its reserve goal has been reached, the board said. Income was 22.7 million euros last year, of which 5.7 million euros will be allocated to government reserves, it added.

To contact the reporter on this story: Ott Ummelas in Tallinn at oummelas@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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