Only US, UK, Japan and Hong Kong Fully Ready to Fund a Major Bank Failure, FSB Review Finds
The Financial Stability Board reviewed emergency funding plans in 19 major jurisdictions and found only the United States, United Kingdom, Japan and Hong Kong fully met its standards. The watchdog urged urgent action to close gaps before the next failure.
Most large economies do not have a fully credible public funding plan to keep a major failing bank operating long enough to be sold or wound down in an orderly way, the Financial Stability Board said in a thematic review of 19 jurisdictions.
Only four jurisdictions fully met the board’s recommendations for a public sector backstop: the United States, the United Kingdom, Japan and Hong Kong, according to FStech’s report on the review. Five others were judged largely compliant, eight were rated materially non-compliant, and two did not meet the standard, FStech reported. Fewer than half of those assessed had arrangements that were clearly defined, large enough and available quickly enough for a crisis, according to both FStech and Finimize.
Who fell short, and what happens next
FStech listed Canada, Mexico, South Africa, South Korea and Singapore as largely compliant. Australia, Brazil, China, the European Union, Indonesia, Saudi Arabia, Switzerland and Turkey were among those rated materially non-compliant, while India and Argentina were non-compliant; Finimize reported that India and Argentina had no safeguard in place. Argentina’s central bank disputed the finding, saying domestic banks’ capitalisation exceeded the international average and that it met international liquidity standards, according to FStech.
The review asked whether governments could provide temporary public funding as a last resort once private liquidity was exhausted, so a failing lender could maintain essential services with limited taxpayer losses, FStech reported. Review chair Soledad Núñez said a credible backstop mechanism is essential and that further work is urgently needed, according to FStech. The board said it would share good practices, review guidance and monitor progress.
The assessment follows the 2023 banking turmoil, when several U.S. regional banks failed and Switzerland arranged the takeover of Credit Suisse by UBS, FStech reported. In that episode the Swiss National Bank provided emergency support, but a permanent public backstop was still pending before parliament, according to FStech. The board’s message was that funding arrangements should be settled before a failure rather than improvised under pressure.
Reporting based on coverage by FStech and Finimize.
