[LINK] "Latvia as Another Cyprus?"

[rfmcdonald]

In a column published at Transitions Online, Martin Ehl argued that Latvia, with its Russian-oriented banking sector and on the eve of accession to the Eurozone, isn't on the verge of becoming the next Cyprus. Briefly, banking isn't important enough to the Latvian economy and the relevant Latvian and European authorities are keeping close watch.

During the crisis and the reform period after 2009, banking’s share of the Latvian economy declined and monitoring increased. Unlike in Cyprus, banking supervision has toughened as a result of frequent suspicions of money laundering. Still, some Russian clients of Cypriot banks, in interviews with the media, have said bankers from Latvia have already reached out to them, offering their services.

It should be noted that private Russian money is managed especially by smaller banks with a small number of wealthy clients, which constitute 20 percent of the Latvian banking business. These are banks that aren’t afraid of taking big risks. Large Scandinavian banks dominate the rest of the industry.

According to unofficial information from Latvian bankers, several transactions from Cyprus were already rejected in the past few months because of rules against money laundering.

[. . .]

“There are no grounds to expect large inflows of unknown-origin funds entering the Latvian financial sector in the nearest days, as requirements for non-resident customer assessment in Latvia are among the highest ones, …” Kristaps Zakulis, head of the country’s banking regulator, told me in a statement.

“Also, the statements that Latvia could become Cyprus No. 2 are not true, because the sizes of the financial sectors in both countries and their significance to the economy are rather different,” Zakulis said. He noted that the finance industry, including banking, makes up 40 percent of Cyprus’ GDP, compared with 3 to 3.5 percent in Latvia.