FSB Finds Gaps in Emergency Bank Resolution Funding

A Financial Stability Board review found only about one in five member jurisdictions fully met its emergency-funding standard for systemic bank resolutions.

Key points

Only about one in five FSB member jurisdictions fully complied with the global standard for public backstop funding in bank resolution.
The United States, United Kingdom, Japan and Hong Kong were the only jurisdictions Reuters identified as fully compliant in the review.
The FSB urged authorities to pre-arrange scalable liquidity, operational testing and tools to recover losses rather than improvising during a crisis.

A core crisis tool remains incomplete

The Financial Stability Board has warned that most major jurisdictions still lack fully credible public funding arrangements for resolving a systemically important bank. Its October 9 peer review found that only about one in five member jurisdictions fully complied with Key Attribute 6, the international standard covering temporary funding during resolution. About half had material gaps, while fewer than half had mechanisms that were clearly defined, large enough and capable of delivering liquidity quickly. The FSB said incomplete implementation could weaken authorities' ability to manage a failure without severe disruption or taxpayer-funded bailouts.

Four jurisdictions met the full standard

Reuters reported that the United States, United Kingdom, Japan and Hong Kong were the only fully compliant jurisdictions among the 19 assessed. India and Argentina were judged non-compliant, while the European Union banking union and Switzerland were among those rated materially non-compliant. Those labels address the specific design and readiness of public backstop mechanisms, not a country's entire crisis-management capacity. The FSB cautioned that authorities may still be able to assemble emergency measures, but relying on improvised support can create uncertainty at the moment confidence is already fragile.

Backstops are intended as a last resort

The review concerns temporary liquidity for a bank already in resolution after private resources and market funding are exhausted or cannot support an orderly process. It is not a recommendation for routine solvency support or blanket public ownership. A credible backstop is meant to preserve critical banking functions long enough for resolution tools to work, while ensuring shareholders, creditors or the wider financial industry ultimately absorb appropriate costs. The FSB's framework therefore pairs funding capacity with safeguards against moral hazard and mechanisms for recovering any residual public losses.

Speed and scale are the main weaknesses

The report found that several authorities had not clearly established how much public funding could be made available, how separate sources would be coordinated or how resources would be converted into cash under resolution timelines. Some jurisdictions could not demonstrate that their systems had been tested across agencies. That matters because a systemic bank can lose liquidity rapidly, and uncertainty over available support may accelerate withdrawals, depress market confidence and increase the risk of a disorderly failure. Pre-arranged access to flexible public resources was a feature of the strongest frameworks.

The 2023 turmoil shaped the review

The work followed the bank failures and rescues of 2023, when liquidity pressure spread with unusual speed. Credit Suisse was taken over by UBS in a government-engineered transaction supported by emergency liquidity facilities and a Swiss public backstop. The episode reinforced the distinction between a bank's eventual loss allocation and the cash it needs to keep essential operations running during resolution. The FSB said recent cases showed why funding plans must be legally grounded and operational before a crisis rather than assembled after stress becomes acute.

Six recommendations now move to national authorities

The FSB called for urgent action to establish clear legal bases, scalable funding capacity, governance, operational testing, reliable loss-recovery tools and safeguards defining when public support may be used. It also said it would share good practices and monitor progress. The review did not cover foreign-currency liquidity or broader cross-border coordination, leaving important questions for internationally active banks outside its scope. Even so, its conclusion is direct: a resolution regime is only credible if temporary liquidity can arrive at the required speed without leaving taxpayers with unallocated losses.

Sources

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FSB Finds Major Gaps in Bank Crisis Funding Backstops