A resolution action is taken when the resolution authority (the Single Resolution Board or Latvijas Banka) determines that a failing determines that a failing credit institution or an investment firm (resolution entity) 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 credit institution or an investment firm, application of a resolution tool or the exercise of one or several resolution powers.
Separation of the resolution function
Latvijas Banka performs the tasks of a resolution authority, while ensuring that the execution of these tasks does not limit other tasks specified in Section 5 of the Law on Latvijas Banka, including the supervision of the financial market and its participants, and the provision of compensation disbursement schemes. The execution of the regulatory authority's tasks must not affect or interfere with the performance of other Latvijas Banka's tasks, including the formulation and implementation of the monetary policy.
Latvijas Banka ensures the operational independence of its resolution function by separating it from its other functions, particularly with regard to the professional secrecy and disclosure of information under its functions related to supervision and the operation of the compensation disbursement schemes.
Latvijas Banka ensures that the activities of the Council and its established committees, including the activities of Latvijas Banka's Resolution Committee, in the area of resolution are entirely separated from other functions.
Latvijas Banka maintains independent decision-making procedures under its resolution function, including by establishing information circulation restrictions and protective measures necessary for the execution of the resolution authority's tasks.
Latvijas Banka's employees involved in the execution of the resolution authority's tasks are structurally separated from the employees involved in the execution of other Latvijas Banka's tasks.
Resolution objectives
When applying resolution tools to the institution under resolution, the resolution authority chooses the tools that best achieve the following resolution objectives:
- to guarantee the continuity of critical functions
- to avoid significant adverse effects on the stability of financial markets and to maintain market discipline
- to protect the government resources by reducing reliance on the state aid
- to protect the interests of depositors and investors
- to protect customers' financial resources and assets
Resolution plan
To ensure the operational response of the resolution authority in the situation of crisis, for each credit institution 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 credit institution or to an investment firm if the following conditions for resolution are met:
- the competent authority or the resolution authority finds that the credit institution or the investment firm is failing or is likely to fail;
- no alternative private sector measures are available, if implemented within a reasonable time-frame, would prevent the failure of the credit institution or the invetsment firm;
- 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 credit institution or to the investment firm.
Resolution tools
With regard to to a credit institution or to an investment firm that fulfils all the conditions for the application of resolution measures, the resolution authority is entitled to apply one or several of the following resolution tools:
- sale of business tool
- bridge institution tool
- asset separation tool
- bail-in tool