The Bank for International Settlements' Financial Stability Institute published an FSI Brief examining how central banks apply solvency as a condition for emergency liquidity support, finding that most central banks require the recipient firm to be solvent. Across the surveyed jurisdictions, solvency for emergency liquidity support is framed broadly as a firm’s capacity to meet its financial obligations, but authorities differ in how they assess it, ranging from balance sheet snapshot approaches to wider, potentially forward-looking, assessments of viability. The brief argues that any forward-looking viability assessment used for emergency liquidity support should be consistent with the forward-looking assessment of a firm’s likelihood to fail used for resolution purposes, implying a need for close coordination between central banks, supervisors and resolution authorities when dealing with weak banks, while recognising that some ambiguity in applying these conditions may be unavoidable and can preserve flexibility in distress.
Bank for International Settlements - Financial Stability Institute 2025-12-12
Bank for International Settlements' Financial Stability Institute analyses solvency conditions for emergency liquidity support
The Bank for International Settlements' Financial Stability Institute released a brief on central banks' use of solvency for emergency liquidity support, noting most require firms to be solvent. Solvency is defined as meeting financial obligations, but assessment methods vary. The brief suggests aligning these assessments with those for resolution purposes, emphasizing coordination among central banks, supervisors, and resolution authorities.