24 October 2016, Single Resolution Board Member Mrs Joanne Kellermann arrives on a two-day working visit in Latvia. During her visit, Mrs Joanne Kellermann will discuss the priorities of Single Resolution Mechanism and key issues of the Latvian banking sector with the Chairman of Financial and Capital Market Commission (FCMC) Peters Putnins and the Head of Resolution and Guarantee Fund Department Nadezda Karpova and its experts. In October 25th Mrs Joanne Kellermann will meet the Finance Minister of Latvia Dana Reizniece-Ozola.
“One lesson learned out of the financial crisis is the need for proper bank recovery and bank resolution planning. To this end, the Single Resolution Board is glad to be working closely and to count on the good cooperation with the National Resolution Authorities like FCMC. Together, we make sure that an orderly resolution will have minimum impact on the real economy and the public finances of the Member States – and the Euro area as a whole”, said Single Resolution Board Member Mrs Joanne Kellermann.
It should be noted that currently the Single Resolution Board, in close cooperation with FCMC, is taking decisions on four credit institutions in Latvia: JSC Swedbank, JSC SEB banka, JSC ABLV Bank and JSC Citadeles banka. However, FCMC is in charge of resolution activities for the rest of the banks in Latvia. Where the funds of Single Resolution Fund are needed for bank resolution, the decision is made by the Single Resolution Board. The SRB is the resolution authority within the Banking Union. Together with the National Resolution Authorities (NRAs) it forms the Single Resolution Mechanism. The mission of the SRB is to ensure an orderly resolution of failing banks with minimum impact on the real economy and the public finances of the participating Member States of the Banking Union.
„This year, FCMC has already had an opportunity to see how the Single Resolution Mechanism is functioning in practice. Before the European Central Bank’s (ECB) decision on withdrawal of the license of JSC “Trasta Komercbanka”, FCMC as the National Resolution Authority in Latvia assessed whether the bank resolution would be necessary in the public interest. As JSC “Trasta Komercbanka” didn’t have critically important functions of Latvian financial system and economics, the decision was made not to resolve the bank,” says Nadezda Karpova, Head of Resolution and Guarantee Fund Department at FCMC.
In force from January 2015, the Single Resolution Mechanism (SRM) constitutes one of the pillars of the Banking Union. It complements the Single Supervisory Mechanism (SSM) and the harmonized Deposit Guarantee System. All three pillars aim to make the banking system in the Banking Union safer.
Responsibilities are allocated among the SRB and the NRAs (in Latvia, FCMC), as laid down in the SRM Regulation (SRMR). The role of the SRB and the NRAs is not limited to crisis situations, but is primarily focused on planning and preparatory measures, such as drawing up resolution plans, setting appropriate levels of Minimum Requirements for Own Funds and Eligible Liabilities (MREL), thus providing extra internal funds that could be used for the bank capital recovery.
The SRB is in charge of the Single Resolution Fund (SRF) which is planned to be build up during the transitional period of eight years (from 2016 to 2023) reaching at least 1% of covered deposits of all banks in the participating Member States of the Banking Union. The SRB may only use the SRF for the purpose of ensuring the efficient bank resolution when it is necessary in the public interests considering critical functions of financial system and their role in the economics.
There are nearly 4000 banks as well as certain investment firms that make regular contributions to the Single Resolution Fund. The Latvian banks have already paid in the Fund approximately EUR 15 million. It should be noted that in the transitional period (up to the year 2023) each participating Member State has a possibility of borrowing across countries within the Fund. Every country has a national compartment which is an extra source of security and stability for the Latvian banking system in case of bank resolution, where appropriate.
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