JPMorgan Chase & Co. has stopped clearing USD transfers to Latvian lenders, president of the Latvian Commercial Banking Association Martins Bicevskis told Bloomberg . Bicevskis noted that this is not going to hinder work and that other partners to replace JPM are being looked for. Bloomberg reminds that recently the U.S. Office of the Comptroller of the Currency concluded that JPMorgan "has an inadequate system of internal controls and independent testing" for money-laundering regulation. Bloomberg also reminds of reports by UN Security Council and Global Witness that were alarmed by shady transactions through Latvian banks. Without JPM only Deutsche Bank and Commerzbank are the only foreign banks that Latvian lenders can now use to clear USD transfers, Bloomberg notes. At the same time the bank association said in a statement that Latvian banks enjoy a wide network of Fx clearing partners: last year 8 correspondent accounts were opened in USD, in the last two years 52 accounts in different banks were openned. Especially in the light of Latvia's Eurozone membership approval and spring's banking crisis in Cyprus , there were high concerns over a high proportion of non-resident deposits in the Latvian banking system. Allegedly ECB officials even warned FinMin against harbouring Russian and CIS capital fleeing Cyprus , although Latvian FinMin fiercely denied these reports. In May Moody's believed that there deposits, mainly of CIS origin and accounting for about 50% of total sector's accounts introduce complexity into the banking system and change system-wide stability. Financial and Capital Markets Commission (FKTK) watchdog commented on the report by Moody's that FTKT is particularly prudent with those banks involved with the exports of financial services. She noted that banks with much non-resident business indeed faces more state, legal, and reputational risks. FTKT also launched special oversight measures on non-resident deposits flow, she stressed. Later the same month of May 2013 in a special report " Latvia and Cyprus : Banking on a Different Scale" Fitch Ratings argued that Latvia's banking risks are fundamentally different than those faced by Cyprus before 2013 bail-out, and that Cyprus fallout is not expected to derail Latvia's pending 2014 Eurozone accession bid. Fitch noted that should the inflow of non-resident deposits persist, it could put downward pressure on the rating. In an event of sudden deposit outflow banks might be vulnerable, even given higher capital and liquidity requirements for non-resident assets and liabilities. Agency also notes that despite rapid deleveraging of the private sector since 2008, Latvia still has the highest loan-to-deposit ratio in the Emerging Europe and the second-highest among Fitch-rated sovereigns in 2012 at 196% (123% in Cyprus ). At that, non-resident deposits (predominantly of Russian beneficiaries) account for 49% of total deposits (37% in Cyprus ) and are mostly concentrated in domestic banks. However, non-resident deposits are only 40% of GDP vs. 140% in Cyprus . Fitch also notes that non-resident deposits in Latvia were relatively stable in the 2008-2009 crisis, which is also expected in the future. Also, Latvia's banking sector is 1.3xGDP vs. 6.7xGDP in Cyprus . Latvian banks, largely foreign-owned have a strong domestic orientation, while Cypriot banking system was significantly expanding its operations overseas. Latvian economy is much less reliant on the financial sector which accounts for 3.5% of GDP vs. 9% of GDP in Cyprus .
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