FSB found major bank-resolution funding gaps across most member jurisdictions

The Financial Stability Board found material gaps in public backstop funding arrangements for bank resolution across approximately half of the jurisdictions it reviewed. Fewer than half had arrangements that were clearly defined, sufficiently large and capable of being deployed quickly, Reuters reported from the review. The FSB issued six recommendations aimed at making temporary public funding usable before a systemic bank reaches failure.

The review examined 19 jurisdictions against standards designed to support orderly resolution without exposing taxpayers to permanent losses. It followed the 2023 banking turmoil, when acute liquidity stress contributed to several failures and the government-engineered rescue of Credit Suisse by UBS. The FSB said public funding should remain a last resort after a bank's own resources and market access have been exhausted.

BACKSTOPS MUST BE READY BEFORE A CRISIS

The FSB assessed whether each mechanism had a clear legal basis, could provide liquidity at the required scale and speed, and included tools for recovering any taxpayer losses. It also examined safeguards intended to contain moral hazard and preserve the last-resort character of state support. The review did not assess the full range of each jurisdiction's bank-resolution powers.

Authorities were urged to identify available funding in advance, remove legal and operational uncertainty and establish credible loss-recovery arrangements. The FSB said improvised support during a crisis could weaken confidence and make an orderly resolution more difficult. It noted that jurisdictions can meet the standard through different institutional designs rather than a single prescribed model.

IMPLEMENTATION WILL REQUIRE NATIONAL ACTION

The report called for urgent national reforms and asked the FSB to support implementation by sharing good practices and reviewing existing guidance. The global body also plans to monitor progress against its Key Attribute 6 standard and related principles. Soledad Núñez, deputy governor of Banco de España and chair of the peer review, said the assessment identified one critical gap rather than judging countries' overall crisis-response capacity.

The findings place bank-resolution liquidity back on the agenda for finance ministries, central banks and resolution authorities. Jurisdictions with material deficiencies will need to decide how temporary funding can be authorised, collateralised and recovered without turning a resolution facility into an open-ended bailout. The next concrete milestone will be national implementation work and the FSB's monitoring of the six recommendations.