The Single Resolution Mechanism (SRM) has been in place since 2015. Latvijas Banka, as the resolution authority in Latvia, is a member of the SRM, and together with the Single Resolution Board (SRB) and the other national resolution authorities of the EU, it is constantly working to improve and strengthen the SRM. The resolution covers credit institutions and investment firms that are subject to the requirements of the Law on the Recovery and Resolution of Credit Institutions and Investment Firms. The prudential regulation and supervision of those institutions is designed to minimise the damage that could be caused by liquidity and solvency crises. However, credit institutions and investment firms are private companies, and although they are subject to tight regulation, they may still have problems and fail. If insolvency is inevitable, despite prudential regulation and supervision, the task of the resolution authorities is to safeguard financial stability by minimising disruptions to the economy and protecting taxpayers from losses.
Clear processes for resolving credit institutions and investment firms have been developed during the operation of the SRM. However, crisis preparedness must be further strengthened to ensure that Latvijas Banka, as the resolution authority, has access to all the tools it needs to respond to any potential crisis, to implement the resolution scheme, and to manage any restructuring, recapitalisation, or transfer strategy that is required for an institution.
The functions of the resolution authority for credit institutions that are subject to direct supervision by the ECB within the framework of the SSM and cross-border credit institution groups are discharged by the SRB, but Latvijas Banka's representatives participate in the resolution processes implemented by the SRB and in preparing the SRB's decisions, as well as implementing the decisions adopted by the SRB, including those related to setting the minimum requirement for own funds and eligible liabilities. Three Latvian credit institutions and one branch of a credit institution from another Member State, accounting for 84% of the total assets of credit institutions, were under the direct responsibility of the SRB in 2024. Latvijas Banka, as the national resolution authority, is responsible for the resolution function for the remaining six credit institutions and three investment firms.
In 2024, the priorities in resolution were:
- to continue the operationalisation of the resolution mechanism. Latvijas Banka:
- continued participation in the EC's structural support project 23EE09 Technical support for national handbooks for Estonia, Lithuania and Latvia. Within the framework of this project, the operationalisation process for the application of resolution tools is being developed and organised. Over the course of 2025, it is intended to draft and improve the resolution handbook, which will cover decisions, draft contracts, procedures, methodologies, and other aspects necessary to ensure that resolution tools are ready to be applied. This project is an important step in strengthening the resolution process and ensuring it can be implemented effectively if needed;
- participated in several dry-run exercises to enhance the resolution process that were organised by the SRB;
- to ensure resolution plans are kept up to date and to approve decisions on the minimum requirements for own funds and eligible liabilities.
Resolution plans are updated at least once a year to account for any changes in the market and in the institutions themselves. The aim is to ensure crisis preparedness and enhance the institutions' resolvability.
Seven resolution plans were updated in 2024 in line with the business models and risks of the credit institutions, including four resolution plans of credit institutions under Latvijas Banka's direct responsibility; the resolution plan of one credit institution was not reviewed by Latvijas Banka because that institution was subject to simplified requirements under which resolution plans may be reviewed every two years.
The success of the resolution of a failing institution depends largely on whether the institution has sufficient minimum own funds and eligible liabilities to allow it to absorb losses or recapitalise in a crisis. Considering that the Daisy Chain Directive applies as of 14 November 2024 , the minimum requirements for own funds and eligible liabilities are not set for credit institutions with a liquidation strategy. This is only set if the credit institution could have a significant impact on the depositors' protection scheme or an influence on financial stability and the financial system. In 2024, the minimum requirements for own funds and eligible liabilities for the two credit institutions under the direct responsibility of Latvijas Banka were set, and decisions on implementing the minimum requirements for own funds and eligible liabilities set by the SRB were passed for both institutions.
- to ensure timely contributions to the Single Resolution Fund (SRF).
In close cooperation with the national resolution authorities including Latvijas Banka, the SRB is responsible for calculating the annual ex ante contribution payable to the SRF by each institution under the provisions of the SRB Regulation, and for managing and using the SRF. The objective of the SRF is to provide funding that can be called upon in a crisis to resolve a credit institution. The SRF was built up from contributions made by credit institutions in Member States, including those in Latvia, with a target level of at least 1% of the deposit amount covered at the credit institutions of all the participating Member States.
The target level of the SRF is reviewed annually and has been reached (80 billion euro) based on the status as of 31 December 2024. Since 2015, the contributions made by Latvia's credit institutions to the SRF have amounted to 54.9 million euro. No contributions will be made by credit institutions in 2025 unless the fund is called upon to support a resolution during the year.
