Table 2. RANKING OF TOP 20 BANKS (as of April 1, 1995)*

|Name of Bank|Assets<br>(USS million)|Own Capital<br>(US$ million)|Deposits<br>(US$ million)|Loans<br>(US$ million)|
|---|---|---|---|---|
|Bank Baltija**|496|53|392|283|
|Unibank|173|<br>21|116|71|
|Riga Commercial Bank|170|19|124|71|
|Latvian Krajbanka|166|21|138|33|
|Parex Bank|163|<br>13|106|**_85_**|
|Latvian Deposit Bank**|<br>105|<br>12|90|66|
|DLB|74|16|51|33|
|Zemes Banka|73|7|58|31|
|Centra Bank**|70|12|53|57|
|Rietumu Bank|63|5|37|4|
|Baltic Transit Bank|56|12|38|28|
|Olimpija**|55|13|43|36|
|Saules Bank|53|6|43|10|
|Naftas & Kimijas Bank|39|6|24|23|
|Latintrade Bank**|38|6|28|31|
|Latvian Creditbanik|37|7|26|25|
|Latvian Capital Bank|35|2|31|1|
|Sakaru Bank|34|4|24|15|
|Alejas Bank**|29|4|22|19|
|Kredo-Bank"*|25|2|22|1|

**_*)_** Source of information: Latvian Bankers Association (banks were ranked by assets).

> **) Banks that collapsed in June-September, 1995.

support. Initially it was believed that Baltija's insolvency problem was of moderate size--on the order of $50 million--but as the accountants dug deeper into Baltija's financial operations, it became clear that the bank's negative net worth was as great as about $320 million or 7% of the expected 1995 GDP. The Bank of Latvia at this time refused to provide further liquidity support. The crisis had come to a head. Instead, the Bank of Latvia and government officials began protracted negotiations with the owners and management of Baltija. The owners and managers sought to stall for time by, among other things, suggesting a merger with the Latvian Deposit Bank and Centra Bank (these banks were also declared insolvent at a later stage) so that they could try to come up with a recapitalization plan. In retrospect, this provided a window of opportunity for managers and owners to undertake an asset stripping of the bank. See Box 1.

Of the roughly US$500 million in assets on Baltija's books when the crisis began, some US$260 million had disappeared by the time it was declared insolvent in July 1995. In addition, funds were blocked at Baltija's correspondent accounts with banks in Russia, Belarus and Ukraine.

Subsequently, the Bank of Latvia took over the management of the bank in the context of an Agreement drafted between the owners and management on the one side and the Bank of Latvia and Ministry of Finance on the other. Initially, this Agreement was used by the owners and managers to try to obtain concessions from the Government, on the principle that Baltija was too big to fail and that its fall would have significant political ramifications. Ultimately, as the depth of the problem becamne known, and following advice from the Bank and IMF, the Agreement was redrafted to give full control of the bank to the Bank of Latvia (Baltija's owners could regain control of the bank if they fully recapitalized it--an unlikely event given the degree of insolvency of the bank). So the Agreement served to provide the Bank of Latvia with the powers to run and dispose of Baltija despite the fact that the former lacked the power to formally intervene in the bank under the existing banking law.

# _General causes_

It is not possible to identify one single cause of the banking crisis in Latvia. There are multiple causes running from a set of general factors relating 4