The integration process involving the Finance and Capital Market Commission (FKTK) and the Bank of Latvia could be used as an excuse to reduce the independence of the central bank, said the governor of the bank Martins Kazaks.
“We can see the merge process of FKTK and the Bank of Latvia is not simple. Certain underwater obstacles appear every now and then, and sometimes it seems like there is a lobby that is actively preventing progress in this matter. In certain cases it starting to seem the FKTK integration process in the Bank of Latvia is being used as an excuse to reduce the central bank’s independence. This is very risky, because a politically independence central bank contributes the most to Latvia’s society,” said Kazaks.
He notes the Bank of Latvia looked past political cycles, while preserving a longer and wider look at what benefited the economy. Additionally, it is easier for the Bank of Latvia as a completely apolitical structure to work with politicians, who are the decision-makers.
“Losing independence for the central bank would mean losing a critical opinion leader, which often outlines things that are not pleasant for politicians in a short-term perspective but are beneficial for the economy in a long-term perspective. Independence of the central bank provides assistance for the government’s and Saeima’s work. The central bank cannot be politically dependent or politically involved,” stressed Kazaks.
He said that in relation to the planned integration of FKTK in the Bank of Latvia changes to the Law on the Bank of Latvia and amendments to more than 20 accompanying regulations had been prepared. Everything has been submitted to the Finance Ministry for review. After corrections have been added, changes will be submitted to the Cabinet of Ministers and later to the Saeima.
“We hope in 2023 the Bank of Latvia and FKTK will start working as a single institution. Currently our goal is making sure both the Bank of Latvia and FKTK are able to perform their duties until their merge and continue performing high-level monitoring of other banks. Our objective is making sure market participants do not experience any changes except improved quality of services,” says Kazaks.
He explained that in accordance with the Bank of Latvia and FKTK shared vision, the supervisory institution would not be added to the Bank of Latvia like a wagon to a train – a full integration was planned.
“It will be a fully integrated institution that will make decisions regarding supervision of banks and related matters in the future. Additionally, the council of the Bank of Latvia as a collegial body will make decisions related to the central bank’s supervisory affairs and the cases under FKTK’s direct supervision. Of course, separation of all potential conflicts of interest will be performed on an operational level, offices will be formed for specific functions and workers who are not allowed to communicate with each other will not do this. A something of a Great Wall of China between monetary and financial monitoring functions,” adds Kazaks.
He noted that this would not be something new for the Bank of Latvia, because it already had a number of operation functions divided by walls, as there were many different functions that should not overlap. (BNN/Business World Magazine)