FSB report assesses jurisdictions' implementation of public sector backstops

The Financial Stability Board (FSB) has published a thematic review, submitted to the G20, assessing jurisdictions' implementation of public sector backstop funding (PBF) mechanisms in line with FSB Key Attribute (KA) 6 and its 2016 guidance. A PBF mechanism provides temporary liquidity support to banks in resolution as a last resort if all other sources of liquidity are exhausted. It is one part of the comprehensive approach to ensuring global systemically important banks (G-SIBs) have reliable access to liquidity in resolution.

The review finds that although significant progress has been made, approximately half of jurisdictions continue to have material gaps in their PBF arrangements. In many jurisdictions, authorities have not clearly established how much temporary public funding would be available once a systemic bank enters resolution or how they would combine and coordinate multiple funding sources, if needed. The review also shows there are multiple ways to design a PBF that can fully meet the FSB's high standards.

The report sets out six recommendations (detailed in section 6) to close the implementation gaps that are identified including: focusing on clear and credible PBF arrangements that can provide liquidity at the scale and speed required for orderly resolution; strengthening operational readiness through governance and testing; and establishing robust arrangements to recover losses, protect taxpayers and mitigate moral hazard.

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