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Bloomberg: Troubles with ABLV point to ECB's ability to supervise eurozone banks

Photo: pixabay.com.

Assessment by the U.S. that Latvian lender ABLV had laundered money and breached U.S. sanctions on North Korea resulted in the lender’s fall over a week’s time, but also raised questions about the responsibilities of the European Central Bank’s as chief supervisor for euro-zone banks, reported Bloomberg.

The ECB could be embarrassed if it had gaps in its fit-and-proper assessment of ABLV executives. he ECB relies on input from national authorities to prepare, but they have to form their own opinion and the decision is down to the ECB,» Nicolas Veron, a senior fellow at the Peterson Institute for International Economics, evaluated as cited by American business news portal Bloomberg before the central bank announced the closure of the Latvian lender.

Bloomberg wrote that the ECB is not responsible for the prevention of money laundering in banks; however, it is responsible for ensuring senior bankers are suited for the task of managing their firms.

The Frankfurt body has explained it can only act when national authorities point out money laundering at banks, therefore the issue demonstrates the challenge the ECB faces after it has taken over banking supervision from the euro area’s national authorities in 2014. The measure is aimed at aimed at restoring confidence in banks after the financial crisis.

Representatives of both the ABLV and the ECB refused to provide the their comments to Bloomberg.

ABLV Bank will be liquidated in accordance with Latvia’s laws, because preservation of this credit institution is not in the interest of the country’s society, announced the European Central Bank on Saturday, 24 February.

In the report, ECB concluded that ABLV Bank and its subsidiary ABLV Bank Luxembourg are expected to collapse in the near future. ECB has informed the board of European Single Resolution Mechanism of its decision. The latter concluded that no measures are needed to achieve full regulation of those banks, because it would not fit with society’s interests.

This is why liquidation of those banks will be performed in accordance with laws in Latvia and Luxembourg, as ECB mentioned in its announcement.

ECB: ABLV Bank will be liquidated in accordance with Latvia’s laws

Reportedly, the ECB has noted: «Because of significantly worsened liquidity, it is expected the bank will not be able to pay its debts and perform other commitments within specified terms. The bank lacks funding to handle increased outflow of deposits before the deposit guarantee fund’s payment procedure begins.»

ABLV Bank is under direct supervision of ECB.

Latvia’s Finance and Capital Market Commission decided on the night to Saturday, February 24, that ABLV Bank has entered a state of deposit unavailability.

Because ECB has not provided any instructions to cancel established payment restrictions, FCMC Council has made the decision on unavailability of deposits to ensure payment of guaranteed compensations to the bank’s clients. This situation became a reality because FCMC has found that the bank is unable to pay its clients their deposits.

FCMC reminds that finances from Latvia’s Deposit Guarantee Fund will not be used, because ABLV Bank has enough profitable assets. According to current estimates, ABLV Bank needs around EUR 470 million to pay its clients. The bank is able to afford this.

ABLV Bank notes that FCMC’s decision in regards to unavailability of deposits for the bank means a liquidation process may be launched in the near future.

The bank believes it has completed all requirements from the regulator to restore operations. Over the course of four days, the bank had accumulated more than EUR 1.36 billion to ensure liquidity, securing 86% of all requested deposits. The bank’s representatives believe it was enough to restore operations and comply with client’s requests.

ABLV Bank itself associates FCMC’s decision with political reasons.


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