LONDON, Oct 9 - The Financial Stability Board, the international body charged with monitoring risks across the financial system, has urged national authorities to strengthen arrangements for emergency funding to failing banks after a review found major shortfalls in many jurisdictions.
The FSB's peer review examined jurisdictions' progress in meeting its standards for resolving banks without relying on taxpayer-funded bailouts. Its findings showed that fewer than half of the jurisdictions surveyed had funding arrangements that met three key conditions: being clearly defined, large enough to meet potential needs, and capable of being mobilized quickly during a crisis.
The peer review is part of a programme of work launched in the wake of banking turmoil in 2023, a period that included the collapse of Credit Suisse. The Swiss lender was taken over by UBS in a government-engineered rescue after it experienced severe liquidity stress. That deal was supported by a combination of emergency liquidity facilities, a government liquidity backstop and the writedown of Additional Tier 1 bonds.
The FSB noted that recent bank failures illustrated how rapidly lenders can fall into acute liquidity stress. Against that backdrop, the review sets out a series of recommendations intended to shore up crisis funding frameworks.
Key recommendations include identifying in advance what temporary public funding could be made available during a bank failure, putting a clear legal basis in place for the provision of such support, and ensuring authorities have powers to recover any losses incurred from those interventions. The FSB also urged that funding arrangements be designed so they can be deployed quickly when stress materializes.
"Having a credible public sector backstop funding mechanism is essential," said Soledad Núñez, deputy governor of the Bank of Spain and chair of the peer review. Her comment underlined the review's central finding: preparedness and legal clarity matter for effective crisis response.
The review's conclusions and recommendations are framed as practical steps for authorities to take to reduce reliance on emergency taxpayer-funded rescues and to increase the speed and clarity of crisis responses. The report does not add further measures beyond those recommendations, but it highlights a gap between the FSB's resolution standards and current national arrangements.
Context and implications
While the FSB's peer review does not prescribe a single solution, it calls for advance planning by governments and regulators to ensure temporary funding can be made available where needed, supported by a lawful framework and recovery powers. The review forms part of a broader effort to reduce systemic risk by sharpening the tools that authorities can rely upon in times of bank stress.