Banking System in Latvia

September 3, 1991, the Bank of Latvia became a central bank with the right to issue the national currency. On March 4, 1992, the law of taking over the rights of the Bank of Latvia was adopted. The status of Bank of Latvia was again reinforced in May 19, 1992. For the first time, the independence of the central bank from the government‘s policy was ensured by legislation. In the spring of 1995, Latvia experienced the largest banking crisis of any country of the former Soviet Union. The total banking system lost about 40% of its assets and liabilities, plus depositors were estimated to have lost almost $800 million in savings. The crisis reached maximum when Bank Baltija (by far the largest bank in the country) was forced to suspend its operations. Banks failed because of transition uncertainties, doubtful bank activities and stabilization fallout. Consolidation started after the crisis, when some Latvian banks turned to Western partners.…