Today, the European Commission (EC) announced that it has opened an “in-depth investigation into state support measures for the Latvian JSC Parex Banka,” Latvia’s second largest bank, pursuant to the EC Treaty State aid rules, which the EC characterized as the “first step towards finding a viable long-term solution for the bank, in close contact with the Latvian authorities.” Beginning in November 2008, the EC has approved several financial aid packages “for Parex in the form of state guarantees, liquidity support and a recapitalisation measure.” Most recently in May, the EC “approved amendments to the recapitalisation measure enabling Latvia to acquire newly issued ordinary shares and subordinated debt with the aim to strengthen the bank's capital basis.” The Latvian government also notified the EC at this time of it restructuring plan for Parex. The plan “includes the implementation of a new business strategy as well as a number of restructuring aid measures consisting of a liquidity support, a prolongation of state guarantees, potential new state guarantees to ensure further funding of the bank and capital injections.” The EC has not yet determined whether “the restructuring plan will enable Parex to return to long-term viability while avoiding undue distortions of competition.”

The EC's investigation seeks to determine “whether the planned measures are capable of restoring the long-term viability of Parex, whether state support is limited to the minimum necessary, and whether the proposed measures to limit potential distortions of competition are in proportion to the distortive effects of the aid.” The EC emphasized that the formal investigation procedure will not prejudge “whether the measures concerned are in line with the EU State aid rules.” Rather, the investigation is deemed as necessary “to ensure legal certainty for the aid beneficiaries and their business partners and provides an opportunity to take account of comments from interested parties.”