ABLV, one of Latvia’s largest lenders, is set to fail, drawing to a close a week of financial turmoil for the Baltic state, the eurozone’s chief banking watchdog said.
The country’s third-largest lender will be wound up by the EU authorities a little more than a week after allegations from the US Treasury that it had helped facilitate the funding of North Korea’s missile programme.
Latvia has faced chaos in the wake of the accusations, which were followed by the detainment of the central bank governor Ilmars Rimsevics on allegations of bribery. Both Mr Rimsevics and ABLV deny the charges, which prosecutors say are unrelated.
The European Central Bank said it had “determined that ABLV Bank was failing or likely to fail in accordance with the Single Resolution Mechanism Regulation”.
The ECB also said in its statement early on Saturday morning that the lender’s subsidiary ABLV Bank Luxembourg was “failing or likely to fail”.
The ECB added: “Due to the significant deterioration of its liquidity, the bank is likely unable to pay its debts or other liabilities as they fall due. The bank did not have sufficient funds which are immediately available to withstand stressed outflows of deposits before the payout procedure of the Latvian deposit guarantee fund starts.”
The ECB’s Single Resolution Mechanism, the vehicle set up to wind up failing banks, decided that the bank and its Luxembourg subsidiary could be wound up, the central bank added.
ABLV, which had assets worth about €3.6bn, had struggled to access foreign liquidity after the US Treasury made the allegations on February 13. The Treasury invoked the Patriot Act, under which it can ban all US financial institutions from dealing with the bank, putting pressure on ABLV’s access to dollar funding.
The ECB’s supervisory wing, the Single Supervisory Mechanism, imposed a moratorium on all euro payments, which had been in place since last Monday.
ABLV indicated early on Saturday morning that it believed the supervisor’s decision had been too tough.
“The bank considers that it has fulfilled all requirements of the regulator in order to resume operation,” it said. “In four business days, the bank accumulated more than €1.36bn to strengthen liquidity thus ensuring 86 per cent of all demand deposits.
“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.”
ABLV said the amount of its assets was sufficient to satisfy demands of all clients and creditors.
“All deposits guaranteed by the Deposit Guarantee Law shall be disbursed with the funds of ABLV Bank,” it added.