The European Commission said on Tuesday it has approved a Latvian support scheme to stabilize financial markets by providing guarantees to eligible banks to ensure their access to financing.
The European Union (EU)'s competition guardian said in a statement that the measure is in line with its rules on state aid to overcome the financial crisis.
"In particular, the scheme ensures non-discriminatory access, is limited in time and scope, requires market oriented remuneration and contains sufficient safeguards to avoid abuses," it said.
Under the Latvia's national scheme, the government will provide guarantee which covers all liabilities with the exception of interbank deposits, subordinated liabilities and collateralized liabilities such as covered bonds which have a maximum maturity of three years.
Instruments guaranteed under this scheme may be issued within six months following the Commission's approval.
Moreover, in exceptional cases only, the Latvian measures also provide for the takeover of distressed banks.
In the first instance, the scheme has a ceiling which corresponds to ten percent of the Latvian Gross Domestic Product. Only solvent banks are allowed to enter the scheme.
The Commission said its approval only covers a period of six months, following which Latvia should terminate the scheme or re-notify its extension to the Commission.
Separately, a group of lenders led by the International Monetary Fund announced Friday that they would provide 7.5 billion euros (10.5 billion U.S. dollars) in financial aid package to Latvia, whose economy has been hard hit by the financial crisis and the global economic slowdown.
Source: Xinhua
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