Published: 17.11.2022

A resolution action is taken when the resolution authority (the Single Resolution Board or Latvijas Banka) determines that a failing bank cannot initiate the insolvency proceedings without harming the public interest or causing financial instability.

A resolution action constitutes the decision of the resolution authority to initiate the resolution proceedings of a bank or investment firm, application of a resolution tool or the exercise of one or several resolution rights.

When applying resolution tools to the institution under resolution, the resolution authority chooses the tools that best achieve the following resolution objectives:

1) to guarantee the continuity of critical functions;

2) to avoid significant adverse effects on the stability of financial markets and to maintain market discipline;

3) to protect the government resources by reducing reliance on the state aid;

4) to protect the interests of depositors and investors;

5) to protect customers' financial resources and assets.

To ensure the operational response of the resolution authority in the situation of crisis, for each bank and investment firm under resolution a resolution plan has been drawn up (to be reviewed once a year) and an assessment of resolvability is carried out.

In the resolution planning process, the resolution authority ensures the feasibility and credibility to apply a resolution action to a bank if the following conditions for resolution are met:

1) the resolution authority finds that the bank is failing or is likely to fail;

2) no alternative measures are available in the private sector which, if implemented within a reasonable time-frame, would keep the bank from failing;

3) the resolution action is necessary in the public interest in order to achieve one or more resolution objectives and the resolution objectives would not be achieved to the same extent, if the insolvency proceedings were applied to the bank.

With regard to to a bank that fulfils all the conditions for the application of resolution, the resolution authority is entitled to apply one or several of the following resolution tools:

1) the sale of business tool;

2) the bridge institution tool;

3) the asset separation tool;

4) the bail-in tool.