A new international bank-resolution assessment finds that roughly half of the jurisdictions reviewed still have material gaps in arrangements for providing temporary public funding to a systemic bank in resolution. Its 9 October peer review calls for advance preparation, warning that a backstop improvised during a crisis may not be ready to deliver liquidity at the speed and scale required.
The assessment follows the bank failures of 2023, which demonstrated how quickly acute liquidity stress can develop. It focuses on one part of resolution planning: a last-resort source of temporary liquidity when a bank’s own resources and access to private markets are unavailable or insufficient. The review does not assess jurisdictions’ overall ability to respond to financial crises or the full range of resolution powers.
A backstop is a last resort, not a rescue plan
The international standard examined in the review was adopted in 2011. It is intended to help authorities resolve failing financial institutions without severe disruption to the wider system, while preserving critical economic functions and limiting taxpayer losses. The funding provision sits alongside other parts of a resolution regime, including the allocation of losses and the recapitalisation of a failing bank.
Under the framework, a public-sector backstop is not the preferred source of funds. A bank’s internal liquidity resources and market funding come first. Public funding is contemplated only when those sources are not available or do not meet the temporary needs of an orderly resolution. The report says the backstop is not a mechanism for solvency support or temporary public ownership.
Having a credible route in place beforehand matters because authorities may need to act under acute time pressure. The review examines whether a mechanism could provide liquidity at the scale and speed required, whether public losses could be recovered and whether safeguards would help keep support genuinely exceptional. It also finds that jurisdictions have made significant progress and that there is more than one way to design an arrangement that meets the framework.
Six areas for further work
The recommendations ask jurisdictions to clarify in advance what temporary public funding could be available, how different arrangements would work together and how the mechanism fits within the wider financial safety net. They also call for assessment of whether funding could be large and flexible enough for a systemic failure, potentially including a pre-arranged route to additional public resources where a country’s banking system requires it.
Operational readiness is another focus. The report urges authorities, including central banks, to establish clear governance, ensure banks can access liquidity in resolution and test arrangements against fast-failure scenarios. It says legal powers should support recovery of public funds, first through mechanisms such as allocating losses to shareholders and unsecured creditors and, if those are insufficient, through industry assessments after the event.
Authorities are also asked to set out principles and conditions for decisions about temporary support, helping mitigate moral hazard without making timely access impossible. For jurisdictions whose systemic banks have significant cross-border operations or foreign-currency needs, the review calls for practical preparation with home, host and other relevant authorities. That includes clarifying contacts and coordination channels and considering how funds would be provided and distributed without being trapped in parts of a banking group.
Implementation remains the test
The report recommends that the FSB help members by sharing good practice, building on existing implementation material where needed and monitoring progress. It does not propose changing the underlying standard or its related guidance. Instead, it identifies incomplete implementation as a weakness in the capacity to resolve systemic banks and a potential concern for global financial stability.
The findings should not be read as a claim that every jurisdiction lacks a backstop, or that a crisis is imminent. Nor does the review rank countries’ overall crisis-management capabilities. Its central point is narrower: a mechanism must be credible, legally grounded, operationally tested and capable of protecting public funds before it can be relied upon as a last resort. Preparation in calmer conditions is intended to reduce the risk that authorities face unresolved funding questions when a failing bank needs swift action.
