Saeima advances merger of central bank and financial regulator

Take note – story published 3 years ago

On April 22, the Saeima conceptually supported the merger of Finance and Capital Market Commission (FKTK) and Latvian Central Bank (Latvijas Banka).

In the first reading, Parliament approved both a new draft law of the Bank of Latvia, which provides for a framework for the operation of the central bank following its merger with the FKTK, as well as a majority of the accompanying packages related to it, which includes 24 drafts.

As reported earlier by LSM, the idea of the merger was discussed at the beginning of 2020 and formally advanced by the Cabinet in May 2020.

As a result of the merger, macroprudential policies will become more effective, and the merged institution's decisions will also become more effective. The merger will also reduce personnel, financial and material costs in the medium term. The total annual operating expenditures of the merged institution are estimated to be about EUR 1.6 million or 3.4 percent lower than the expenditures of the two separate institutions. The merger will also contribute to more coordinated and efficient development of the financial sector.

The most significant risks from the merger include greater concentration of influence in the financial system, as well as a potential conflict of interest between monetary policy and macro- and microprudential supervision.

After merging the FKTK with the Bank of Latvia, the Finance Ministry will continue to develop financial and capital market policy.

The current Law on the Bank of Latvia has been in force since 1992 and the new Law on the Bank of Latvia is scheduled to enter into force on 1 January 2023.

The draft law will still be viewed in the second and third readings.

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