The Latvian financial market watchdog FKTK declared PNB Banka, formerly known as Norvik, insolvent on August 22.

The decision comes in the wake of an assessment by the European Central Bank (ECB) from August 15 that PNB was “failing or likely to fail” because of “significant capital shortfalls.”

The ECB began supervising PNB Banka earlier this year after the bank’s main shareholder, the Russian-born UK citizen Grigory Guselnikov, accused Latvia’s central bank governor Ilmars Rimsevics and the FKTK of trying to force a bribe. Riga asked for the ECB’s supervision to avoid accusations of being impartial in the conflict.

Guselnikov claimed the Latvian authorities put the bank under “unfair, arbitrary, improperly motivated and unreasonable regulatory treatment” in order to extort money in return for allowing the bank to carry on business in the Baltic state.

Riga says the bank’s problems are due to its inability to meet capital requirements.

“The bank supervisors, the ECB and the FKTK, have repeatedly applied to PNB Banka supervisory measures for the purpose that the bank would meet regulatory requirements, as well as granted the bank an opportunity to carry out capital strengthening measures within the specified deadlines, but the bank was unable to meet the set limits and deadlines,” the FKTK said in a statement.

The case has also embroiled Latvia’s government that saw the dispute as damaging to the country’s reputation, already in doubt after a series of scandals involving its lenders in money laundering or financing terrorism.

PNB Banka is Latvia’s sixth largest lender. It has €550mn in assets, €472mn in deposits and employs about 500 people.