The Latvian authorities will meet on February 26 to discuss dangers that may ensue from the failure of the country’s third-largest bank ABLV, the Baltic state’s prime minister said on February 24.

Prime Minister Maris Kucinskis spoke after the bank’s fate – in doubt after the US Treasury accused it of money laundering and links to North Korea two weeks earlier – was sealed by the European Central Bank, which said that saving the lender was “not in the public interest”.

“Due to the significant deterioration of its liquidity, the bank is likely unable to pay its debts or other liabilities as they fall due,” the ECB said in a statement, adding that ABLV was “failing or likely to fail”.

“The bank did not have sufficient funds which are immediately available to withstand stressed outflows of deposits before the payout procedure of the Latvian deposit guarantee fund starts,” the Eurozone’s central bank continued.

The run on the bank began shortly after the announcement of the US Treasury’s Financial Crimes Enforcement Network (FinCEN). A loan of €100mn from Latvia’s central bank – itself mired in crisis over allegations of bribery made against its governor Ilmars Rimsevics – proved too little.

The failure of ABLV has put the Latvian banking in the spotlight again for its dubious links with money-laundering and other forms of financial crime.

Facing up to the reality of the national supervision not living up to the task, Kucinskis pledged further action.

"[Latvia’s efforts to supervise banks] have not been sufficient to achieve a more substantial reduction in the share of risk customers and the involvement of the Latvian banking sector in activities non-compliant to international practices and laws,” Kucinskis admitted.

“The responsible officials and experts from the financial sector at national and international level have to agree on a set of further actions to improve the financial supervision system,” he added in a statement.

ABLV’s deposits will now remain frozen until no later than March 7, the deadline by which Latvia’s Financial and Capital Market Commission (FKTK) will begin payouts of guaranteed deposits of up to €100,000.

Latvia has long been eyed as a haven for illegal money, especially stemming from Russia and other countries of the former Soviet Union. The Baltic state has, however, undertaken a number of measures over the past couple of years in a bid to improve control over money flows through its banking system, especially the boutique banks specialising in non-resident services. 

Prompted by the ABLV crisis, Riga is now eyeing a gradual reduction of non-resident deposits in the system from the current 40% to 20%, Kucinskis told Reuters on February 23.