Latvia has called an emergency meeting of financial authorities on Monday in an attempt to limit the fallout from the forced collapse of its third-biggest bank.
The European Central Bank announced on Saturday that ABLV, a Latvian bank that had faced allegations from the US of helping to fund North Korea’s missile programme, would be wound up after deciding that it “was failing or likely to fail”.
The failure caps a dramatic week in which Latvia’s financial sector has come under intense scrutiny. Its central bank governor has faced two separate anti-corruption allegations and officials have hinted that Russia may be trying to spread mischief.
In a marked change of tone, Maris Kucinskis, Latvia’s prime ministe, admitted at the weekend that the Baltic state had not done enough to stop money laundering and other risky practices.
Mr Kucinskis said Latvia had “taken steps” to prevent the inflow of cash related to money laundering and terrorist financing.
But he added that “they have not been sufficient to achieve a more substantial reduction in the share of risk[y] customers and the involvement of the Latvian banking sector in activities non-compliant to international practices and laws”.
The prime minister ordered an emergency meeting of the supervisory board of Latvia’s financial sector to discuss the matter. The government will also debate the issue in cabinet.
Authorities sought to reassure the public that there would be no contagion in its financial system.
Mr Kucinskis reiterated that he believed the financial system was stable and that it had “the ability to take major steps to ensure that the banking sector regains its reputation”.
Latvia sought to position itself as a Switzerland of the east, offering private banking services to ex-Soviet states.
But it has long faced allegations that it had been lax on financing of money laundering in its desire to capture so-called non-resident deposits from Russia and elsewhere.
Dana Reizniece-Ozola, finance minister, warned that more than a dozen banks in Latvia that specialised in attracting foreign deposits like ABLV could be affected by the fallout, according to Reuters.
She added that the level of deposits in other banks had not changed significantly while various consultations were needed to find ways to step up the fight against money laundering.
Latvia’s financial regulator said that deposits in ABLV were currently unavailable but that customers would receive the guaranteed compensation of up to €100,000 by March 8.
ABLV, which had assets of about $3.6bn, has denied the allegations from the US Treasury. It disputed on Saturday the need to wind itself up, saying it had accumulated €1.4bn in four business days “to strengthen liquidity”.
Latvia’s financial problems were exacerbated by the detention last week of Ilmars Rimsevics, central bank governor, on anti-corruption allegations and separate claims of bribery from the country’s eighth-largest lender, Norvik Bank.
Mr Rimsevics has denied the charges, calling them ridiculous.
His house was burgled at the weekend, according to Latvia’s state broadcaster, in what his lawyer called “a planned and professionally organised operation”.