In a press release dated Saturday 24 February, the European Central Bank (ECB) announced its decision to declare the third largest bank of Latvia, ABLV, and its Luxembourg-based subsidiary “failing or likely to fail.”
The decision was made during the night of 23 February and immediately notified to the Single Resolution Board (SRB), which has decided not to activate the EU banking resolution tools set out in the directive on the recovery and resolution of banks (BRRD).
Readers may recall that on Monday of last week, the ECB imposed a freeze on payments made by the bank, following a sharp deterioration in its financial situation amid accusations of money laundering and involvement in illegal weapons development programmes in North Korea (see EUROPE 11964). These problems coincided with a scandal involving the Governor of the Latvian Central Bank, Ilmārs Rimšēvičs, who is suspected of corruption.
To justify its decision, the ECB refers to a significant deterioration of the bank's liquidity, making it unlikely that it is able to pay its debts, and a shortfall of immediately available funds to cope with mass withdrawals of deposits.
On the same day, the SRB issued a press release stating that a resolution action was not necessary in the public interest, as “neither of these banks provide critical functions, and their failure is not expected to have a significant adverse impact on financial stability in these two countries or other member states”.
For its part, ABLV considers that it has met all the requirements of the regulator to resume normal operational functioning, for instance by accumulating more than €1.36 billion to reinforce its stability.
“It was absolutely sufficient for the bank to resume executing payments and meet all obligations towards its clients, yet due to political considerations the bank was not given a chance to do it”, it lamented in a press release published on Sunday.
Following these decisions, the liquidation of the banks will therefore be carried out in line with the legislation of Latvia and Luxembourg, which protect eligible deposits up to €100,000.
ELA. Addressing the parliamentary committee on economic affairs of the European Parliament, the President of the European Central Bank (ECB), Mario Draghi, said on Monday 26 February that the decision to grant emergency liquidity to ABLV had been made by the national central bank. However, he added that he was in favour of transferring the decision-making powers to the European level, in a field still under national sovereignty. (Original version in French by Marion Fontana)