EN  ECB -PUBLIC  
 
OPINION OF THE EUROPEAN CENTRAL BANK  
of 30 January  2020  
on the right of insolvency administrators and liquidators of credit institutions to  hold  funds in an 
account in Latvijas Banka   
(CON/2020/ 4) 
 
Introduction and legal basis  
On 26 November  2019, the European Central Bank (ECB) received a request from the Ministry of 
Finance of the Republic of Latvia for an opinion on a draft law containing amendments to the Law on 
credit institutions1 (hereinafter the ‘draft law’) . 
The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the 
Functioning of the European Union and the third indent  of Article  2(1) of Council Decision 98/415/EC2, as 
the draft law r elates to Latvijas Banka.  In accordance with the first sentence of Article 17.5 of the Rules of 
Procedure of the European Central Bank, the Governing Council has adopted this opinion.  
 
1. Purpose of the draft law  
1.1 Currently Latvian national law imposes an obligation on administrators of credit institutions that are 
insolvent to hold funds in an account opened at Latvijas Banka. The draft law  seeks mainly to 
(i) change this obligation into a right, and (ii) to extend this right to liquidators of credit institutions 
that are being liquidated3.  
1.2 According to the draft law, a liquidator or administrator of a credit institution may hold the funds of a 
credit institution  that is being liquidated or a credit institution that is insolvent , including funds 
recovered during the liquidation or insolvency process, in a euro account in Latvijas Banka in 
accordance with the terms and conditions  applicable to the managing of such accounts  in Latvijas 
Banka. Only the liquidator or administrator is entitled to transfer funds to such an account in 
Latvijas Banka from an account of the credit institution that is  to be liquidated or credit institution 
that is insolvent that is held at a credit institution in an EU/EEA Member State. Similarly , only the 
liquidator or administrator is entitled to transfer funds from such an account in Latvijas Banka to the 
account of the credit institution that is to be liquidated or credit institution that is insolvent . The 
liquidator or administrator is also entitled to keep cash in the cashier’s office to the extent 
necessary for covering the current expenses of the liquidation or insolvency pr ocess. 
                                                 
1   Kredītiestāžu likums, Latvijas Vēstnesis, 163,  24.10.1995.  
2  Council Decision 98/415/EC of 29 June 1998 on the consultation of the European Central Bank by national 
authorities regarding draft legislative provisions (OJ L 189, 3.7.1998, p. 42).  
3  Pursuant to Article 6 of the Law on c redit institutions, branches of third count ry credit institutions can exercise  the 
existing  right to keep funds in an account in Latvijas Banka during insolvency process es. Unless Article 6 of  the Law 
on credit institutions is amended, branches of third country credit institutions that are being liquidat ed will also be 
able to exercise  the right to keep funds in an account in Latvijas Banka.   
ECB -PUBLIC  
2 1.3 According to the Ministry of Finance , the draft law adopts a common approach to  the rights of 
insolvency administrators and liquidators of credit institutions in relation to the holding of funds of 
such  credit institutions in an account opened in  Latvijas Banka and the holding of cash at  its 
cashier’s office for covering current expenses  of the liq uidation or insolvency process .  
 
2. General o bservations   
2.1 Tasks of Latvijas Banka  
2.1.1  Under the existing provisions of the Law on c redit institutions , funds which have been obtained in 
the insolvency  process of a credit institution by recovering or selling its assets , have to be 
transferred by the administrator to an account of the credit institution opened in Latvijas Banka. The 
draft law establishes a right (but not an obligation) of a liquidator or administrator to keep funds of a 
credit institution that is being liquidat ed or of a credit institution  that is insolvent , including funds 
recovered during the liquidation or insolvency process , in an account in Latvijas Banka.  Therefore 
the draft law ’s proposed extension of the existing arrangements for insolvency administrators to 
liquidators of credit institutions that are being liquidat ed does not confer a new task on Latvijas 
Banka, but is rather a technical extension of Latvijas Bank a’s existing task  in this respect . 
2.1.2  In addition, it should be noted t hat while the majority of national central bank s (NCB s) in the 
European System of Central Banks (ESCB) do not appear to have been assigned tasks relating to 
the maintenance of accounts for insolvency administrators or liquidators,  the ECB has identified 
one non-euro area Member State where an  NCB  has been given similar tasks. In Bulgaria,  a 
trustee in bankruptcy can deposit funds of the credit institution that has declared bankruptcy into an 
account with Българска народна банка (the Bulgarian National Bank )4. Also, in another non- euro 
area Member State ( Croatia ), credit institutions under voluntary or compulsory liquidation are 
obliged to allocate and maintain required reserves in an account with Hrvatska narodna banka (the 
Croatian National Bank )5. In some other non- euro area Member States6, while the respective 
NCBs are not explicitly entrusted with a similar task of keeping funds of credit institutions that are 
being liquidated or that are insolvent, insolvency or liquidation as such does not automatically 
trigger a cancellation of the account in the respective NCB. In this regard, and also taking into 
account that it is generally not unusual for NCBs to provide banking services to various kinds of 
entities, the extended task of Latvijas Banka does not appear to be completely atypical of NCB 
tasks.  
2.2 Consequences of insolvency or  liquidation of a credit institution in relation to Eurosystem 
operations  
2.2.1  Regarding the consequences of insolvency or liquidation of a credit institution in relation to 
Eurosystem monetary policy operations, each NCB  in the Eurosystem is required to apply 
contractual or regulatory arrangements that , as a minimum, provide for eve nts of default where, 
inter alia, a decision is made by a competent judicial or other authority to implement, in relation to 
                                                 
4  Article 72(2) of the Law on b ank bankruptcy (Закон за банковата несъстоятелност ). 
5  Article 16 of the Law on Hrvatska narodna banka (Zakon o Hrvatskoj narodnoj banci (Narodne novine br. 75/2008), 
Zakon o izmjenama i dopunama Zakona o Hrvatskoj narodnoj banci (Narodne novine br. 54/2013)).  
6  For example in the Czech Republic  and in Hungary.  
ECB -PUBLIC  
3 the counterparty, a procedure for the winding- up of the counterparty or the appointment of a 
liquidator or if the counterparty is, or is deemed to be, insolvent . In the event of a procedure for the 
winding -up of the counterparty or for the appointment of  a liquidator , the default shall be automatic , 
whereas  in the event the counterparty is, or is deemed to be, insolvent , the default may be 
automatic7. 
2.2.2  Regarding the consequences f or opening an insolvency process in relation to a credit institution 
participating in a TARGET2 component  system , the central bank  or component operator  shall 
immediately terminate without prior notice or suspend the participant’s participation in its TARGET2 
component system if, inter alia , an insolvency process  (defined as any collective measure 
provided either to wind up the participant or to reorganise it, where such measure involves the 
suspending of, or imposing limitations on, transfers or payments8) is opened in relation to the 
participant9. Liquidation is not independently specified as the grounds for termination of 
participant’s participation in TARGET2 component and it is up to the legal order of eac h Member 
State to ascertain under the national law whether liquidation is a part of the insolvency  process  for 
the purpose of application of Guideline ECB/2012/27 of the European Central Bank10.In Latvia, a 
credit institution can undergo a liquidation process in the event of, inter alia, insolvency pursuant to 
Article 126(1)3) of the Law on credit institutions. If, however, the liquidation process is initiated prior 
to and/or in the absence of the credit institution becoming insolvent (for example, due to revocation 
of a banking licence or in the event of self -liquidation)  a participant’s participation in TARGET2 
could be terminated due to the participant’s failure to meet acces s criteria specified in 
Article  17(1)(b) of Guideline ECB/2012/27.  
2.2.3  Against this backdrop, the rights of administrators of credit institutions that are insolvent and 
liquidators of credit institutions that are being liquidat ed to hold funds in account s opened at 
Latvijas Banka under the draft law have no implications for  Eurosystem operations. The funds held 
in such accounts shall be treated in accordance with the relevant rules adopted by the Governing 
Council of the ECB, including the application of the negative deposit facility rate11. 
2.2.4  The monetary financing prohibition set out  in Article 123(1) of the Treaty  prohibits , inter alia,  
overdraft facilities or any other type of credit facility with NCBs in favour of the public sector. The 
precise scope of application of the monetary financing prohibition is further  clarified by Council 
Regulation (EC) No 3603/9312 which makes it clear that the prohibition includes any financing of 
                                                 
7  Articles 165(1) and 165(2) of Guideline (EU) 2015/510 of the European Central Bank of 19 December 2014 on the 
implementation of the Eurosystem monetary policy framework (ECB/2014/60) (OJ L 91 2.4.2015, p.3).  
8  Point (j) of Article 2 of Directive 98/26/EC of the European Parliament and of the Council of 19 May 1998 on 
settlement finality in payment and securities settlement systems (OJ L 166, 11.6.1998, p. 45).  
9  Articles 2(43) and 17(1) of Guideline 2013/47/EU of the European Central Bank of 5 December 2012 on a Trans -
European Automated Real -time Gross settlement E xpress Transfer system (TARGET2) (ECB/2012/27) (OJ L 30, 
30.1.2013, p.1).  
10  Guideline ECB/2012/27 of the European Central Bank of 5 December 2012 on a Trans -European Automated Real -
time Gross settlement Express Transfer system (TARGET2)  (OJ L 30, 30.1.2013, p.1) . 
11  To the extent that such funds qualify as non- monetary policy deposits other than government deposits, reference is 
made to Article 4(2) of Guideline (EU) 2019/671 of the European Central Bank of 9 April 2019 on domestic asset  and 
liability management operations by the national central banks (ECB/2019/7) (OJ L 113, 29.4.2019, p.  11). 
12  Council Regulation (EC) No 3603/93 of 13 December 1993 specifying definitions for the application of the 
prohibitions referred to in Articles 104 and 104b (1) of the Treaty (OJ L 332, 31.12.1993, p. 1). The provisions of 
Articles 104 and 104b(1) of the Treaty establishing the European Community are now  laid down in Articles 123 and 
125(1) of the Treaty.  
ECB -PUBLIC  
4 the public sector’s obligations vis -à-vis third parties. National legislation that provides for the 
financing by an NCB of credit institut ions other than in connection with central banking tasks (such 
as monetary policy, payment systems or temporary liquidity support operations) would be 
incompatible with the monetary financing  prohibition. I n particular , the support of credit institutions 
that are insolvent and/or other financial institutions  that are insolvent  would be incompatible with 
this prohibition. The rationale is that by financing a credit institution that is insolvent , an NCB would 
be assuming a government task13. Against this backdrop, no overdraft or other type of credit facility 
in favour of administrators of credit institutions  that are insolvent  or liquidators of credit institutions 
that are being liquidat ed holding accounts at Latvijas Banka would be possible.  
2.3 Effect of the task on financial or organisational capacity of Latvijas Banka  
Under  the draft law, Latvijas Banka will be able to access the necessary resources to carry out this  
task. Thus, Latvijas Banka will only hold funds of credit institutions that are being liquidated in 
accordance with terms and conditions  applicable to the managing of such accounts in Latvijas 
Banka of Latvijas Banka, which will allow Latvijas Banka to set and apply fees for the provision of 
the respective service to a credit institution that is being liquidat ed. The draft law permits  transfer s 
only between the Latvijas Banka account of a credit institution that is being liquidat ed and account s 
of that  credit institution in  other credit institutions  in an EU/EEA Member State . This means that 
fund transfers  from the Latvijas Banka account of the credit institution under liquidation to creditors 
or other entities will not be possible, and that fund transfers from the credit institution that is being 
liquidated to such creditors would be executed out of the relevant account in a credit institution14. 
Considering the limited functionality of the account maintained at Latvijas Banka, it is  expect ed that 
the account at  Latvijas Banka would be used by a credit institution that is being liquidat ed for a very 
limited number of transactions. In this  respect , it is not expected that Latvijas Banka will have to 
dedicate significant additional human, technical and financial resources to perform this extended 
task.  
 
This opinion will be published on th e ECB’s website.  
 
 
Done at Frankfurt am Main, 30 January  2020.  
 
[signed]  
 
The President of the ECB  
Christine LAGARDE  
                                                 
13  See ECB Convergence Report 2018, avail able on the ECB website at www.ecb.europa.eu . 
14  The obligation of a liquidator to settle creditors’ claims as prescribed in Section IX of the Law on c redit institutions 
remains unchanged by the draft law.