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Wednesday 20.09.2017 | Name days: Marianna, Ginters, Guntra
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Bank of Latvia: membership in Eurozone will guarantee deposit safety

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Support of the European Central Bank (ECB) cannot be considered miracle medicine that can solve the problems of Eurozone’s banks and countries and put a stop to the crisis, Bank of Latvia economist Denis Titarenko notes.

‘Support mechanisms available to the ECB can bring temporary relief to banks, but those mechanisms cannot prevent the problems caused by the debt crisis. It needs a fundamental solution – deep and co-ordinated reforms among Eurozone countries in economic and political fields,’ – the economist says.

Direct benefits can be seen through a united financial stability prism, which can be secured by the advantage of the union of European banks and the support from ECB. By joining the association of banks, all bank activities will be fully or partially subjected to a united monitoring system, the main goal of which is to be responsible for decisions and actions on the level of Europe as a whole.

‘The crisis has shown that, nowadays, when banks’ outline activities only increase and develop even more rapidly than before, it is necessary to develop a general and complex monitoring of the whole of the European banking market. Centralization of the monitoring system and a ‘view from above’ will help finding and identifying systematic risks and problems. It will only increase the co-operation of national supervisors, allow us to decrease market competition distortion,’ – Titarenko says.

Eurozone will create foundations for deposit guarantees, so that bank saving does not fall on tax payers. Also, Latvian banks, similarly to current Eurozone banks, will have access to all ECB support instruments for profitability problem regulation.

‘Using the aforementioned opportunities would ensure a much higher resistance of Latvian banking system against crisis formed situations. It would also mean that there will no longer be any situations similar to that in Latvia 2008. On top of that, any Latvian resident will gain additional security of his deposited money – all this from Eurozone membership,’ – economist explains.

In addition, according to Titarenko, an increased financial stability would mean a more stable bank crediting situation. It would be much easier for banks working in a more stable environment to attract resources for the expansion of their activities. Eurozone membership will also guarantee a larger trust of investors and creditors. With an increase of available funding and resources, banks will seek opportunities to use them. It would definitely improve business activity, including the most important export industries and offer additional stimulation for the growth of national economy. A growing national economy would also mean additional development opportunities for banks.

Another argument for the introduction of Euro can be found within the structure of the banks’ assets. Statistics show that around 60% of the total balance of Latvian banks was made up of Euro assets. A more expressed Euro dominance can be found in the portfolio of issued credits, where credits in Euro made up around 80%.

‘It should be said that benefits from larger financial stability for banks and the entire Latvian community will significantly exceed costs from joining Eurozone. Potential membership in a new and improved Eurozone, like the once joining of the European Union, will give us many new opportunities. How well we choose to use these opportunities is largely dependent only from us,’ – the economist concludes.

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  1. JPR says:

    Funny way of making a POLITICAL point

    Thumb up 0 Thumb down 0

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