Latvian authorities reassure depositors money is safe at closed bank

State officials and banking supervisors scrambled on Friday to reassure clients of Latvia's Trasta Komercbanka that their money was safe after the bank's license was withdrawn last night at the regulator's request.

Latvian Prime Minister Maris Kucinskis told the media that demise of Trasta Komercbanka would not hurt the bank's clients as 93 percent of depositors will be repaid their money in full.

"The bank's exit from the market will not leave a major negative impact on the Latvian financial sector's stability," the premier said. Unlike Parex Bank, whose collapse shook the Latvian banking sector at the onset of the financial crisis in late 2008, Trasta Komercbanka was not of systemic importance, he explained.

Finance Minister Dana Reizniece-Ozola praised the Latvian banking regulator, the Financial and Market Commission, for swift reaction in handling the Trasta Komercbanka case. She indicated that the bank's operations were halted not only because of commercial considerations but also in order to protect national security and Latvia's international prestige.

Peters Putnins, the head of the Financial and Capital Market Commission, informed that 64 million euros would be needed to repay deposits to the bank's 6,000 clients, but that the bank's liquid assets are sufficient to provide this money without touching the savings of Latvia's Deposit Guarantee Fund, which pays compensations to clients of collapsed banks.

The head of the regulator also said he did not expect the closure of Trasta Komercbanka to trigger an outflow of nonresident funds from other Latvian banks as the effect of this event will be too small to cause serious repercussions on the market.

Martins Bicevskis, president of the Association of Latvian Commercial Banks, also said on public TV that the effect of Trasta Komercbanka's liquidation would be "limited".

The Latvian Financial and Capital Market Commission asked the European Central Bank to revoke the commercial bank' s license accusing Trasta Komercbanka of serious violations. The regulator also indicated that a bailout would not be possible in this case.

The regulator's chairman Putnins said on public television Thursday night that Trasta Komerbanka had systematically failed to meet supervisory requirements, had been operating with losses and violated anti-money laundering laws.

The bank's shareholders had been unable to maintain a sufficient capital level and the bank had problems with its internal control system.

Last year, Trasta Komercbanka ranked the 13th biggest bank in Latvia by assets. Endit