The ECB has declared ABLV Bank AS and unit ABLV Bank Luxembourg as "failing or likely to fail."
In a Feb. 24 statement, the regulator said ABLV, Latvia's third-largest bank, is unlikely to pay its debt given the significant deterioration of its liquidity.
"The bank did not have sufficient funds which are immediately available to withstand stressed outflows of deposits before the payout procedure of the Latvian deposit guarantee fund starts," the ECB said.
ABLV had seen an abrupt wave of deposit outflows amounting to €600 million after the U.S. Treasury Department's Financial Crimes Enforcement Network, or FinCEN, proposed Feb. 13 to prohibit the bank from opening or maintaining a correspondent account in the U.S. amid allegations of money laundering.
The EU's Single Resolution Board, meanwhile, said it has resolved that resolution action for ABLV and the unit was not necessary as neither of these banks provide critical functions, and that their failure is not expected to have a significant adverse impact on financial stability.
As a result, the winding up of ABLV and ABLV Bank Luxembourg should be carried out by Latvia and Luxembourg, respectively, the ECB noted.
In response to the decision, ABLV said it believes it had fulfilled its regulatory requirements but was not allowed to resume operations "due to political considerations."
"The bank emphasizes: The amount of its assets is sufficient to satisfy demands of all clients and creditors," it said.
Latvian Finance Minister Dana Reizniece-Ozola had earlier indicated that the government would not step in to rescue ABLV as it is "not regarded as a systemic bank" and its exposure to the country's economy is low.
Prior to the ECB's decision, Latvia's central bank agreed to provide ABLV with €297.2 million in emergency liquidity assistance to help it stabilize its operations.