Krajbanka in long line of swindles

  • 2011-12-07
  • From wire reports

RIGA - No bank can be completely protected from swindlers, even if there are fully-developed internal, external and state monitoring and supervisory systems, Sweden’s financial supervisory authority Finansinspektionen Banking and Securities Department head Uldis Cerps said in an interview with from his office in Stockholm.
There have been cases, in Latvia and in Sweden too, when such market participants ruined a bank or an insurance company, and it appears that the Latvijas Krajbanka case is one of such instances, believes Cerps, who was the head of the Latvian Financial and Capital Market Commission from 2000-2008.

“Regardless of the requirements for several monitoring levels in banks, and even with the other watchdogs, such as the external auditors or bank supervisory authorities, all these levels will still not ensure 100 percent protection from operational risks,” said Cerps, recalling the recent scandal when Union Bank of Switzerland lost 2.3 billion dollars in its securities and currency swaps unit.

Two years ago, Aspis Liv insurance company was stripped of its license after it pledged its assets as security in violation of the law, says Cerps. In Latvia, the Financial and Capital Market Commission, then headed by Cerps, shut down Ogres Komercbanka, which had presented misleading information about its assets and liabilities.
Cerps believes that fraud cases may be prevented if all three financial system supervisory levels - bank internal control and risk management, auditors and state watchdogs - cooperate and complement each other. Watchdogs alone, such as Sweden’s Finansinspektionen, or the Financial and Capital Market Commission, cannot ensure this.
Nonetheless, the implosion of Latvijas Krajbanka has seen heads roll.

The Financial and Capital Market Commission chief, Irena Krumane, has decided to step down. Krumane said that she had decided to resign, believing that the tension regarding her continuing in the job would hamper the work of the Commission, and any political debates, including the one planned in Saeima, will delay stabilization of the sector.
“The decisive action by the Financial and Capital Market Commission after the establishment of a possible crime was aimed at preserving the assets [of Latvijas Krajbanka] and protection of depositors’ interests; therefore, it cannot serve as a cause for reproaching the commission with inaction,” said Krumane.

Krumane claimed she has always been swift to take measures if a flaw was established in the commission’s operations and hopes that the other members of the Financial and Capital Market Commission’s council fulfill their duties as responsibly as she did.

The government took the decision on Nov. 28 to lend 200 million lats (285.7 million euros) to the Deposit Guarantee Fund for an initial period of 15 years, so the fund could pay compensation to depositors in the defunct Latvijas Krajbanka.