Latvian officials are due to hold an emergency meeting on Monday after the European Central Bank wound up the country’s third-largest lender, ABLV, which suffered a funding crisis amid claims of money-laundering linked to North Korea.

Latvian prime minister Maris Kucinskis announced the gathering of top financial regulators as the Baltic state sought to restore confidence in its scandal-hit banking sector.

The ECB initially ordered ABLV to halt all payments last Monday, two days after Latvian central bank chief Ilmars Rimsevics was detained in a separate case for allegedly seeking a bribe of at least €100,000.

He denies the accusations, and Mr Kucinskis criticised the head of another Latvian bank for making similar allegations against Mr Rimsevics, while the country’s defence ministry said the affair could be part of a disinformation campaign by a foreign power.

On Saturday, the ECB announced that ABLV and a Luxembourg-based subsidiary were “failing or likely to fail”.

“Due to the significant deterioration of its liquidity, the bank is likely unable to pay its debts or other liabilities as they fall due. The bank did not have sufficient funds which are immediately available to withstand stressed outflows of deposits before the payout procedure of the Latvian deposit guarantee fund starts,” the ECB said.

Deposits protected

The survival of ABLV was not deemed crucial to Latvia’s banking system and so it will now be shut down, with eligible deposits of up to €100,000 protected by the state guarantee fund.

The bank’s troubles began when the US Treasury called earlier this month for it to be banned from holding a US correspondent account, due to “institutionalised money laundering” and exposure to “large-scale illicit activity connected to Azerbaijan, Russia, and Ukraine. ”

“Illicit financial activity at the bank includes transactions for parties connected to UN-designated entities, some of which are involved in North Korea’s procurement or export of ballistic missiles,” the Treasury Department alleged.

ABLV denied the allegations – and insisted it was sound enough to survive and blamed unspecified “political considerations” for its demise – but its failure and the scandal around Mr Rimsevics have rekindled concern over Latvia’s banks.

The EU and Nato member of two million, wedged between Russia, Estonia, Lithuania and Belarus, became a key conduit in the 1990s for money moving between former Soviet states and the West.

Billions of euro from criminal schemes have allegedly been funnelled through Latvian lenders, forcing regulators to tighten controls that have reduced the proportion of non-resident clients on its banks’ books to around 40 percent.

“I am convinced both about the stability of the Latvian financial sector and the ability to take significant steps so that the banking sector could regain its reputation,” Mr Kucinskis declared.

Latvia’s officials insist its financial system is stable, but confidence has also been rattled by the bribery allegations against its central bank chief of 17 years.

Mr Rimsevics – who reportedly suffered a mysterious break-in at his house on Friday night – says he is the victim of a smear campaign by banks that oppose the fight against money laundering.