Key facts
- FSB found fewer than half of jurisdictions have adequate emergency funding for failing banks.
- The review was prompted by 2023 banking turmoil, including Credit Suisse's collapse.
- FSB recommended clear legal bases and recovery powers for public funding during bank failures.
- Soledad Núñez stated a credible public sector backstop funding mechanism is essential.
The Financial Stability Board (FSB), a global body monitoring financial system risks, has urged authorities to bolster emergency funding mechanisms for banks facing failure. The call comes after a peer review revealed significant gaps in countries' capacities to provide liquidity during crises.
The review, initiated following the 2023 banking sector turmoil that included the collapse of Credit Suisse, found that less than half of the jurisdictions assessed had funding arrangements that were clearly defined, sufficiently large, and capable of rapid deployment. Credit Suisse's takeover by UBS, supported by emergency liquidity facilities and a government backstop, highlighted the need for robust crisis management tools.
The FSB recommended that authorities proactively identify potential temporary public funding that could be made available during a bank failure. Key recommendations include establishing a clear legal framework for providing such support and ensuring mechanisms are in place to recover any losses incurred by the public sector. Soledad Núñez, deputy governor of the Bank of Spain and chair of the peer review, emphasized the necessity of a credible public sector backstop funding mechanism.