ABLV Bank · Banking Resolution

ABLV Bank

In brief

A US anti-money-laundering measure triggered a fatal deposit run on Latvia's ABLV Bank; the ECB declared it failing and the SRB found resolution not in the public interest, leaving the bank to wind itself up under Latvian law.

Timeline

2018-02-13

FinCEN proposes sanction

The US Treasury's FinCEN proposes barring ABLV from US dollar correspondent accounts, alleging institutionalised money laundering.

2018-02-19

Moratorium on payments

Following heavy outflows, a moratorium halts payments on the bank's financial liabilities.

2018-02-23

ECB determines failing or likely to fail

ABLV Bank AS and its Luxembourg subsidiary are both determined failing or likely to fail on liquidity grounds.

2018-02-24

SRB: resolution not in the public interest

Neither entity is judged to provide critical functions; winding up proceeds under national law.

2018-06-12

Voluntary liquidation authorised

Latvian authorities permit the bank's self-liquidation, subject to controls on the vetting of payouts.

Background

ABLV Bank was Latvia's largest independent bank, with a business model built substantially on non-resident deposits from CIS countries. On 13 February 2018 the US Financial Crimes Enforcement Network (FinCEN) proposed to bar the bank from the US financial system, describing money laundering as institutionalised in its business practices. Access to dollar clearing is existential for a non-resident deposit franchise, and a run followed immediately.

Failure and the public interest assessment

Emergency liquidity was insufficient to stem the outflows, and a moratorium was imposed. On 23 February 2018 the ECB determined that ABLV Bank AS and its subsidiary ABLV Bank Luxembourg SA were failing or likely to fail because of the liquidity collapse. The following day the SRB concluded that resolution was not necessary in the public interest for either entity: the bank was not judged to provide critical functions, and its failure was not expected to have significant adverse effects on financial stability in Latvia or Luxembourg.

The wind-down

With no European resolution, the outcome fell to national procedures. In Latvia, the bank pursued a voluntary self-liquidation, which the national authorities authorised in June 2018 subject to safeguards over the anti-money-laundering vetting of repayments to creditors. In Luxembourg, the courts initially declined to open full insolvency proceedings over the subsidiary, which was ultimately wound up in an orderly manner.

Why the case matters

ABLV showed how quickly a compliance event can become a prudential failure: the interval between the FinCEN proposal and the failing-or-likely-to-fail determination was ten days. It also exposed the gap between the European level, where failure is determined, and the national level, where a non-systemic bank's actual wind-down takes place — including the unusual instrument of a supervised self-liquidation.