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)
Date: 2020-01-30
Institutions: European Central Bank
Subjects: Latvia, banking supervision, credit institution, financial solvency, liquidation, national law

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 institutions 1 (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 relates 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 process. 

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2  

3  

Kredītiestāžu likums, Latvijas Vēstnesis, 163, 24.10.1995. 

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). 

Pursuant  to  Article  6  of  the Law  on  credit  institutions,  branches  of  third country  credit  institutions  can exercise  the 
existing right to keep funds in an account in Latvijas Banka during insolvency processes. Unless Article 6 of the Law 
on  credit  institutions  is  amended,  branches  of  third  country  credit  institutions  that  are  being  liquidated  will  also  be 
able to exercise the right to keep funds in an account in Latvijas Banka.  

 
 
 
 
 
                                                 
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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 liquidation or insolvency process.  

2. 

General observations  

2.1  Tasks of Latvijas Banka 

2.1.1  Under the existing provisions of the Law on credit 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  liquidated  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  liquidated  does  not  confer  a  new  task  on  Latvijas 

Banka, but is rather a technical extension of Latvijas Banka’s existing task in this respect. 

2.1.2  In  addition,  it  should  be  noted  that  while  the  majority  of  national  central  banks  (NCBs)  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  States 6,  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  events  of  default  where, 

inter alia, a decision is made by a competent judicial or other authority to implement, in relation to 

4  
5  

6  

Article 72(2) of the Law on bank bankruptcy (Закон за банковата несъстоятелност). 
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)). 

For example in the Czech Republic and in Hungary. 

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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 
automatic 7. 

2.2.2  Regarding  the  consequences  for  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  payments 8)  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 each 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  Bank 10.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  access  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  liquidated  to  hold  funds  in  accounts  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  

8  

9  

10  

11  

12  

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). 
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). 

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  Express  Transfer  system  (TARGET2)  (ECB/2012/27)  (OJ  L  30, 
30.1.2013, p.1). 
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). 
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). 

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. 

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the  public  sector’s  obligations  vis-à-vis  third  parties.  National  legislation  that  provides  for  the 

financing by an NCB of credit institutions 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. In 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 liquidated 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 liquidated. The draft law permits transfers 

only between the Latvijas Banka account of a credit institution that is being liquidated and accounts 

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 expected that 

the account at Latvijas Banka would be used by a credit institution that is being liquidated 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 the ECB’s website.  

Done at Frankfurt am Main, 30 January 2020. 

[signed] 

The President of the ECB 

Christine LAGARDE 

13  
14  

See ECB Convergence Report 2018, available on the ECB website at www.ecb.europa.eu. 
The  obligation of a liquidator to settle creditors’ claims as prescribed in Section IX of the  Law  on credit institutions 
remains unchanged by the draft law.  

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