Fifteen years after the Financial Stability Board adopted its core resolution standard, approximately half of member jurisdictions still have material gaps in the public-sector liquidity mechanism that could be needed when a systemic bank fails. The peer review says incomplete implementation weakens the credibility of resolution and can spill into global financial stability.[1][2]
A resolution can allocate losses and recapitalise a bank while leaving it with urgent cash needs. Payments, collateral calls and depositor withdrawals continue during the process, even as normal market funding becomes unavailable. A pre-arranged public backstop provides temporary liquidity as a last resort after other sources are exhausted, helping critical services continue without improvised public ownership.[1][4][5]
What a credible backstop must be able to do
Capabilities tested by the peer review
| Measure | Value | Context |
|---|---|---|
| Legal authority | Available before the crisis | Officials need a lawful route to commit funding rather than design one during a weekend resolution.Source 2 |
| Scale and speed | Meet a systemic bank’s temporary needs | A facility that is too small or operationally slow is not credible merely because it exists in legislation.Source 2 |
| Loss recovery | Protect taxpayers | Key Attribute 6 requires provision to recover losses from shareholders and creditors or, if necessary, the financial system more widely.Source 5 |
| Last-resort safeguards | Minimise moral hazard | Private funding and the firm’s own assets remain the preferred sources; public liquidity is not the first line.Source 4 |
| Cross-border execution | Work across home and host authorities | A G-SIB resolution requires information, collateral and decision-making arrangements that can operate across jurisdictions.Source 3Source 2 |
How funding supports an orderly resolution
| Stage | Expected source | Why it matters |
|---|---|---|
| Before resolution | Liquidity buffers, collateral and market access | Normal risk management and private funding should absorb ordinary stress.Source 4 |
| Resolution entry | Firm assets, private sources and resolution strategy | Losses are allocated under the resolution framework while critical services continue.Source 5Source 4 |
| Last resort | Temporary public-sector backstop | Used only if other sources are unavailable or insufficient for an orderly resolution.Source 2Source 4 |
| After use | Recovery of any public loss | The mechanism should not leave taxpayers as the ultimate bearer of solvency losses.Source 5Source 2 |
The 2023 failures exposed the speed requirement
The review followed the 2023 bank failures, which demonstrated how quickly liquidity pressure can escalate. It finds further implementation work is needed in a majority of jurisdictions, with approximately half retaining material gaps. This is a focused assessment of the public liquidity backstop within resolution, rather than a grading of every crisis-management power.[1][2][3]
There is no single required institutional design. A central-bank facility, government guarantee or dedicated resolution fund can be constructed differently, provided the arrangement is legally available, sufficiently large and fast, safeguarded and recoverable. The review’s focus is credible execution rather than a common funding label.[2][4]
Readiness therefore depends on more than legal authority. Officials need arrangements that can mobilise funding and collateral quickly, coordinate home and host authorities, and recover any public losses from shareholders and creditors or, if necessary, the wider financial system. Those safeguards preserve the separation between temporary liquidity and the allocation of the failed bank’s losses.[2][5][4]
The report sets six recommendations for jurisdictions and calls for urgent implementation. It also asks the FSB to share good practices, review implementation materials and monitor progress. The practical outcome will be whether authorities convert their powers into operational funding arrangements before the next systemic resolution requires them.[1][2]
Sources & further reading
- FSB report assesses jurisdictions on public sector backstops Financial Stability Board · 9 Oct 2026 · Accessed 16 Oct 2026
- Thematic Review on Public Sector Backstop Funding Mechanisms Financial Stability Board · 9 Oct 2026 · Accessed 16 Oct 2026
- Summary terms of reference for the backstop-funding peer review Financial Stability Board · 23 Feb 2026 · Accessed 16 Oct 2026
- Guiding principles on temporary funding for an orderly G-SIB resolution Financial Stability Board · 18 Aug 2016 · Accessed 16 Oct 2026
- Key Attributes of Effective Resolution Regimes for Financial Institutions Financial Stability Board · Accessed 16 Oct 2026