Regulator steps in on ABLV bank, 470 million euro payout looms

The fate of ABLV bank looked sealed February 24 with Latvia's financial regulator the Financial and Capital Market Commission (FKTK) announcing a "decision on unavailability of deposits" at the bank that will force the bank to pay off depositors to the tune of an estimated 470 million euros.

The actual move to wind up ABLV came from the European Central Bank, which said:

"On 23 February, the European Central Bank (ECB) determined that ABLV Bank was failing or likely to fail in accordance with the Single Resolution Mechanism Regulation. The ECB also determined ABLV Bank Luxembourg, a subsidiary of the Latvian bank, failing or likely to fail."

"Following the failing or likely to fail determination, the ECB duly informed the Single Resolution Board (SRB), which determined that resolution action was not necessary as it was not in the public interest for these banks. As a consequence, the winding up of the banks will take place under the law of Latvia and Luxembourg, respectively."

The move by the ECB came just hours after the Latvian central Bank (governor Imārs Rimšēvičs sits on the ECB's governing council) extended a second loan to ABLV of 200 million euros, on top of 97 million euros provided earlier in the week.

A statement from the Latvian regulator, sent to the press at around 3 a.m. said:

"The Board of the Financial and Capital Market Commission during an extraordinary meeting today 23 February 2018 adopted a decision on the occurrence of unavailability of deposits at ABLV Bank AS.

In view that the European Central Bank (ECB) has not instructed to revoke payment restrictions imposed on ABLV Bank on 18 February 2018 the FKTK Board decided on unavailability of deposits, in order to ensure starting pay-out of guaranteed deposits to ABLV Bank AS clients."

Unavailability of deposits occurs when FKTK has decided that a deposit-taker (bank) is unable to pay out assets or deposits held in the accounts of clients to their clients. 

Pēters Putniņš Chairman of the FKTK said: "This is the procedure under the Single Supervisory Mechanism of EU banking union framework. The bank failed to duly implement the tasks imposed on it by the European Central Bank to stabilize the activities of the bank, so that payment restrictions applied to the bank on 18 February 2018 could be removed. Given such circumstance, FKTK as a national regulator acts in accordance with the situation, as we  have to ensure that the bank's clients may receive the guaranteed compensation of up to EUR 100 000. Our further decisions will be aimed at organising the pay-out of compensations and we will duly inform about it in near future." 

Pay-outs of guaranteed compensation will start no later than on 7 March 2018, FKTK said, adding that it had "prohibited ABLV Bank AS credit transactions (incoming payments) in the accounts of clients – depositors on the date of adoption of this decision. Above restriction would apply also to the payments between the client accounts at ABLV Bank AS."

Deposit guarantee scheme provides for guaranteed compensation up to EUR 100 000 per each ABLV Bank AS client for all types of deposits in any currency. Guaranteed compensation covers deposits of the bank's clients, interest on deposits accrued until the date of unavailability of deposits, current account and salary account balances and savings accounts. Guaranteed compensation applies also to the client deposits in the bank's subsidiaries. The guarantee fund of Luxembourg (Fonds de garantie des dépôts Luxembourg) will disburse guaranteed compensation to the clients of ABLV Bank AS subsidiary, ABLV Bank Luxembourg. 

FKTK added that in this case Latvia's Deposit Guarantee Fund (DGF) assets will not be used, as ABLV Bank AS has sufficient amount of liquid assets. According to preliminary estimates about 470 million euros.

In response to the decision, ABLV admitted it effectively triggered the liquidation of the bank.

"The decision on the merits means that in the nearest future the process of liquidation of the bank may be started," it said.

ABLV also claimed that "political considerations were behind the decision" rather than financial considerations.

"The bank considers that it has fulfilled all requirements of the regulator in order to resume operation. In four business days, the bank accumulated more than EUR 1.36 billion to strengthen liquidity thus ensuring 86% 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," the bank said.

Meanwhile the Association of Latvian Commercial Banks (ALCB) -- of which ABLV was a leading member until last week -- was already looking to the future. A press release said:

"The Latvian banking sector started a significant and comprehensive improvement process in 2016 to ensure the highest standards in countering money laundering and terrorist financing as well as to facilitate sustainable development of the banking sector.


ALCB compliance guidelines.pdf


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The ALCB member banks fully understand the gravity of the situation and will step up their efforts in addressing the issues stemming from prior excessive risk appetite. We will continue to actively pursue significant further reduction of higher risk clients and will ensure total quality control.

"In October 2017, the Council of the ALCB approved Policy Guidance and Guidelines on Anti-Money Laundering, Countering Terrorism Financing and Enforcement of Sanctions. By approving these guidelines, the Council clearly articulated the goal of achieving the highest anti-money laundering and combating the financing of terrorism (AML/CFT) compliance standards among member banks within the next 2 to 3 years," the association said.

The EU's Single Resolution Board said it agreed with the ECB's verdict "and concluded that there are no available supervisory or private sector measures which could prevent the failure of the banks... 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."

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