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FSB review: only US, UK, Japan and Hong Kong fully meet global standard for emergency bank-failure funding
A Financial Stability Board peer review found that just four of 19 assessed jurisdictions have emergency bank-resolution funding arrangements fully in line with global standards; India and Argentina were non-compliant, while the EU and Switzerland were materially non-compliant.
Why it matters
When a bank fails, the killer is usually not a lack of capital but a lack of cash. A peer review published Friday by the Financial Stability Board (FSB) warns that if a bank in resolution cannot obtain enough liquidity, even the strictest capital rules will not restore confidence. The review follows up on lessons from the 2023 Credit Suisse turmoil.
Full report
Of 19 assessed jurisdictions, only the United States, the United Kingdom, Japan and Hong Kong were judged fully compliant with the FSB's requirements for public emergency funding in bank resolution. India and Argentina were rated non-compliant, while the EU banking union and Switzerland were among those deemed materially non-compliant.
Fewer than half of the jurisdictions had funding arrangements that were clearly defined, large enough and capable of being deployed quickly. The FSB urged authorities to identify in advance what temporary public funding could be available during a bank failure, establish a clear legal basis for it, and ensure powers to recover any losses.
Review chair Soledad Núñez, deputy governor of the Bank of Spain, said a credible public-sector backstop funding mechanism is essential. The FSB noted that recent bank failures showed how quickly lenders can come under acute liquidity stress in the digital age, when paper-only backstops are not enough.
Source: Reuters, citing the FSB peer review published October 9.
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