The Financial Stability Board has published its thematic peer review of public sector backstop funding mechanisms, finding that most member jurisdictions need further work to ensure they can provide temporary liquidity to a systemic bank in resolution as a last resort. Only four of 19 jurisdictions fully comply with the relevant FSB standard, while five are largely compliant and 10 have material gaps or no substantive implementation. The review, launched following lessons from the 2023 bank failures, assesses preparedness under Key Attribute 6 rather than jurisdictions’ overall crisis management capacity. The main weakness is the credibility of funding arrangements. Fewer than half of the jurisdictions have mechanisms that are clear, capable of providing liquidity at the necessary scale and deployable within compressed resolution timelines. Some lack prearranged access to flexible public resources or clarity on how multiple funding sources would operate together. Operational testing and cross-authority coordination are also uneven. Although most jurisdictions have some legal basis for recovering losses and limiting moral hazard, incomplete creditor loss allocation and industry levy arrangements can leave taxpayers exposed if temporary funding is not repaid. The FSB recommends that jurisdictions establish and coordinate funding arrangements before a crisis, ensure sufficient scale and flexibility, test deployment under fast-failure scenarios and strengthen legal tools for loss recovery and moral hazard mitigation. Jurisdictions with internationally active banks should also prepare for foreign currency needs and cross-border liquidity distribution. The FSB will share practices, consider additional implementation resources and monitor progress alongside its broader review of crisis preparedness.
Financial Stability Board finds material public sector backstop funding gaps in about half of member jurisdictions
The Financial Stability Board found that only four of 19 member jurisdictions fully comply with its standard for last-resort public funding of systemic banks in resolution, while about half have material gaps or no substantive implementation. Key weaknesses concern funding scale, rapid deployment, operational testing and protections against taxpayer losses. The FSB called for prearranged, scalable mechanisms with clear loss recovery, moral hazard and cross-border coordination safeguards.