(from the source of Financial and Capital Market Services Commission)
The possible reasons of the problems that occurred particularly with Parex are global financial market turmoil and economic recession that influenced most countries involved in the global economy. When the deficiency in Parex client financial resources was identified by FCMC, more and more customers, in particular residents of Latvian neighbouring countries, started to take their deposits out of the bank.
Deposit withdrawal has led to the quick loss of liquidity. Also, Parex foreign securities portfolio had worsened as a result of global financial crisis, and there was no bank or other side which could assume issuing additional guarantee or any collateral to the creditors of Parex.
Other circumstances: Parex had entered into two agreements with syndicated lenders — a 500 million euro loan on 29 June 2007, and a 275 million euro loan on 21 February 2008. Repayment of the syndicated loans was scheduled in early 2009, however Parex could not make the repayment because of the fall in its securities portfolio value.
The increase of financial sector confidence crisis caused by problems in Parex could result in a dramatic outflow of funds to foreign banks and deep crisis of financial resource availability having a negative impact on the whole Latvian national economy. The common opinion is that the Latvian State prevented insolvency of Parex which could become the reason for bigger losses to the whole financial system of the country.
However it should be said that the outflow of deposits in September, October and November of 2008 was not only in Parex, it could be also observed in a number of banks in Latvia. The volume of deposits grew only in several banks, which were regarded by public as safe. In October 2008, total deposit volume in the banking sector fell dramatically, but already in a month deposits started growing.