What lessons could be learned from ABLV bank crash?

What happened between Red Rooster and Yellow Dog? Don’t you agree, it is a weird question. Though, it has a precise answer: The Black Swan.

Those who familiar with trader and economist Nassim Taleb’s accounts, know that The Black Swan term is used to describe events which seem never occurred in any circumstances.

ABLV bank crash

However, these events happen on an annoyingly regular basis.




One of this type event happened just recently: the time when The Red Rooster was passing its mandate to The Yellow Dog.

To be exact – one of the largest Latvian banks, ABLV, ceased to exist.

It is worthwhile mentioning that ABLV announced its voluntary dissolution on February 26, 2018, just two weeks after the first speculations regarding “possible problems with correspondent accounts in US Dollars” appeared in the media.

It is important that from all possible scenarios regarding bank’s future – the most negative event occurred.

For sure, 2 billion euros frozen in accounts of 20 thousand customers of ABLV does not make a major impact to the world economy. However, for the small country like Latvia it means considerable losses for the state budget as well as considerable loss of jobs.

Thus, the history of ABLV as bank is over, and the history of its liquidation just begins.

However, the life is going on, and from this prospective it is important to understand how to protect yourself against similar fatal events in the future.

Below there are several basic but effective tips for investors and entrepreneurs.

1. DIVERSIFY your money

To be more specific – use different banks for you operational, savings and investment activities.

  • The most painful moments for ABLV customers are:
  • Business activity suspension for the companies who had the only account with ABLV bank • Losses of all saving above 100,000 Euros (guaranteed by Latvian government deposit insurance scheme)

Therefore, the only account in one bank could lead to your business suspension and/or loss of your savings.

Having accounts with two (or better with several) banks might totally remove loss risk or reduce it to affordable level.

2. INVEST available funds

While ABLV customers’ funds are frozen, suspension did not affect securities stored in bank’s depository. All securities are still available for immediate transfer to other banks without any limitations.

Meaning that bank’s clients can freely transfer their bonds, shares etc. to any other financial institutions.

Furthermore, bonds, shares and derivatives are not a full list of available assets.

Property, precious metals, diamonds, investment wines and whiskies, paintings and other art collectables, start-up investments – and this is still not a full list of available investment opportunities.

Using these opportunities in accordance with investor’s personal preferences is the key to creation of personal capital that is protected and safeguarded against negative external shocks as much as possible.

3. Use INDIVIDUAL SOLUTIONS

As the fast speed of modern life and modern business leave no time to get to the bottom of things, entrepreneurs were forced to use standard solutions to build financial infrastructure for their international businesses.

No wonder that standard solutions satisfy the needs of a particular business just in part. Thus, businesses can be hit by the losses even with less fatal events than collapse of a bigger bank.

After conducting research and getting full understanding of principles of creation international business structures, entrepreneurs make a conscious choice that gives them awareness of possible risks and how to avoid them.

4. Do a PERIODIC REVISION of the international financial infrastructure of your business.

Automatic exchange of tax information between countries, countering of money laundering and worldwide tax avoidance problem, – as a result, all these recent global initiatives lead to laws regulating financial compliance are changing in fast pace.

For example, controlled foreign companies (CFC) rules and regulations in Russia made use of zero-tax offshore companies commercially unattractive for tax residents of Russian Federation, as such companies are considered tax residents in Russia and need to pay retained profit tax of 20 per cent.

Such legal improvements occur regularly, so entrepreneurs have to review their financial infrastructure periodically not to become illegal at some point.

5. DEAL WITH PROFESSIONALS

We all know that there’s no such thing as a free lunch. However, it is not a big news that lots of entrepreneurs use their connections, who are not finance professionals, to find a solution for fundamental financial tasks of their businesses.

In modern era, everyone feels like you can find an answer to any question in Internet.

It is likely to be true. However, you will never find out if the particular answer going to solve your particular problem.

As a result, choosing the random solution, entrepreneurs waste their time on research and later waste money to remove all negative impacts on their businesses.

The optimal way to be compliant and be sure your business will be active and protected is to make decisions based on professional advice. On one hand, this solution will take into account all specific details of your business circumstances. On the other hand, the professional will provide you information on potential risks in a handy way, as well as advise on protection against them.

Thus, any Black Swan will become if not friendly pet but at least calm bird.

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