The Latvian government wants to halve the share of foreign deposits in the money laundering scandal at one of the largest banks in the euro area.
The goal is to reduce him in the bank balance sheets from currently 40 percent to 20, said the Latvian Prime Minister Maris Kucinskis the Reuters on Friday on the sidelines of the EU summit in Brussels. However, this must be done gradually so as not to cause unnecessary shocks to the economy.
Latvian EU Commission Vice-President Valdis Dombrovskis fears the affair surrounding his country’s reputation. Although there is no great risk to financial stability or credit rating, Dombrovskis said at a Handelsblatt conference in Berlin. “It’s more a question of reputation damage.” Federal Reserve Chairman and ECB currency guard Ilmars Rimsevics has been suspended on suspicion of corruption. Money laundering charges against the country’s third-largest bank, the ABLV, also cause concern.
Rimsevics denies the allegations and sees itself as a victim of a dirt campaign. Dombrovskis pointed out that there is an EU legal framework in the fight against money laundering. However, enforcement is a national task. The question is therefore whether there should not be joint action at European level in this area.
LATVIAN SUPERVISION: NO PANIC AT THE MARKET
Meanwhile, Latvian financial regulators have faced fears that the difficulties in the ABLV could spread to the entire domestic industry. “We do not currently see any panic in the market,” said Chief Executive Officer Peters Putnins. He does not assume that the problems are a threat to the financial system of the Baltic euro area. Finance Minister Dana Reizniece-Ozola also said that although the ABLV has some importance, it is not critical. Since the bank is not systemically important, the government would not save them in the event of a collapse. At present, no further action is needed. The ABLV has received nearly € 300 million in aid from the country’s central bank this week.
The ABLV is accused of being involved in money laundering by customers from Russia and Ukraine. As around 40 percent of Latvian bank deposits come from abroad, worries arose that contagion could exist for other banks. The allegations against ABLV were raised by the US. The financial position of the institute then sharply increased. The European Central Bank (ECB) ordered that domestic supervisors until further notice prevent all disbursements of the bank. It also set a deadline for the institution this Friday to close the funding gap. The bank itself stated that a shrinkage cure might be necessary, but said it would not settle. Kucinskis announced that it would continue to vigorously oppose corruption and criminal activity in the financial sector.