Global watchdog urges authorities to close gaps in emergency funding for failing banks

LONDON, Oct 9 - The Financial Stability Board, the global organization that tracks financial system risks, has cautioned authorities to bolster emergency funding mechanisms for struggling banks, citing significant deficiencies in countries' capacity to provide liquidity during a crisis.

In a comprehensive assessment of progress against the FSB's standards for resolving banks without taxpayer-funded bailouts, the review found that fewer than half of jurisdictions possess clearly defined funding arrangements, sufficient size, and rapid deployment capabilities.

This review comes in the wake of the 2023 banking turmoil, including the Credit Suisse collapse, which was rescued by UBS through a Swiss government-engineered deal involving emergency liquidity facilities, government-backed liquidity support, and the write-down of Additional Tier 1 bonds.

Recent bank failures have highlighted how swiftly lenders can face severe liquidity stress, according to the FSB. The organization has advised authorities to proactively identify temporary public funding options during a bank failure, establish a clear legal framework for providing support, and ensure the ability to recover any losses.

Soledad Núñez, deputy governor of the Bank of Spain and chair of the peer review, emphasized that having a credible public sector backstop funding mechanism is crucial.