The European Central Bank has pulled the license of Latvia’s Trasta Komercbanka on the request of the Latvian financial market regulator FKTK.
The move on March 3 likely spells the end for the beleaguered lender, on which withdrawal limits were imposed in late January by the FKTK, after the bank failed to take action on improving its capital base and proving that it had not been involved in money-laundering.
Money laundering has long been a problem of the Latvian banking sector. Latvian banks are a popular haven for non-resident deposits (NRDs), mostly stemming from Russia, Ukraine and other CIS countries.
The regulator said a decision would follow on access to deposits in Trasta, as well as information on the procedure and timeframe for disbursement of guaranteed compensation. Deposits of up to €100,000 are guaranteed by the state and 93% of depositors will recover their money, the FKTK said.
Trasta Komercbanka is not important enough for the Latvian banking system to undergo resolution action or bailout, the FKTK said in a statement.
“The bank provides no critical functions, and is not a systemically important bank. In the case where the bank quits the market, it will not have adverse effects on financial stability,” the FKTK stated.
FKTK has been under fire recently in Latvia and internationally for alleged inefficiency in curbing money laundering in the Latvian banking system. The criticism led the regulator’s head Kristaps Zakulis to step down in late January, to be replaced with deputy Peter Putnins. The action to pull Trasta’s license may improve Putnins‘ standing with the Latvian government, after he was assessed by a leading minister as not fit for the task of making FKTK more effective.
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