The financial sector in Latvia is a critical component of the country’s economy, with a strong focus on serving both domestic and international clients. While the Latvian banking system has been relatively stable, it has faced challenges, such as the 2008 financial crisis and money laundering allegations. Understanding the Deposit Guarantee Scheme of Latvia is essential for retail depositors and small businesses to protect their funds in the event of a bank failure.
Bank deposit insurance is a safety net that guarantees the repayment of deposits held by individuals and small businesses if their bank becomes insolvent. This protection helps maintain public confidence in the banking system and ensures that customers do not lose all their money in the event of a bank failure. Deposit insurance plays a vital role in promoting financial stability and security.
The Deposit Guarantee Scheme (DGS) in Latvia is administered by the Financial and Capital Market Commission (FCMC) and is governed by the European Union (EU) Deposit Guarantee Schemes Directive. The fund is designed to protect eligible deposits in the event of a bank failure. The FCMC is responsible for implementing and maintaining the DGS, ensuring that it meets its mandate in light of the applicable legal framework in Latvia.
The Deposit Guarantee Scheme of Latvia is triggered when the FCMC determines that a credit institution is unable to repay its depositors’ funds. This determination can be based on the insolvency of the institution or the inability to meet its financial obligations.
The claim filing procedure for depositors is straightforward. The FCMC, as the DGS administrator, will contact eligible depositors directly and provide instructions on how to file a claim. In most cases, the process is automatic and requires minimal input from depositors.
Eligible depositors include individuals, small businesses, and associations, while ineligible depositors include financial institutions, government bodies, and large corporations. The maximum insured amount under the Latvian DGS is €100,000 per depositor, per institution. Joint accounts have a coverage of €100,000 per account holder. Temporarily high account balances are also covered in certain situations, such as property sales, inheritance, or insurance payouts. The additional coverage is provided for up to six months after the funds have been deposited. In case a claim is ineligible for deposit insurance coverage or gets rejected, the depositor can seek legal advice and explore alternative avenues for recovering their funds, such as participating in the liquidation process as a creditor.
In the last two decades, the Latvian banking sector has experienced some bank failures, particularly during the 2008 financial crisis. A notable example is Parex Bank, which faced significant financial difficulties and was eventually nationalized. Another instance is ABLV Bank, which was liquidated in 2018 following money laundering allegations. These failures highlight the importance of understanding the Deposit Guarantee Scheme and its role in protecting depositors.