Incomplete implementation of Key Attribute 6 in most jurisdictions remains a material gap that weakens authorities’ ability to resolve systemic banks and could impact global financial stability.
The FSB adopted the Key Attributes of Effective Resolution Regimes for Financial Institutions in 2011, to make it possible to resolve a failing financial institution without severe systemic disruption and without exposing taxpayers to loss, while preserving the institution’s critical functions.
Key Attribute 6 addresses funding in resolution. To the extent a bank’s own resources or market access to funding is not available or sufficient, Key Attribute 6 and its related guidance calls for a credible public sector backstop funding (PBF) mechanism to be in place, as a last resort, to enable the temporary funding needs of the bank to be met. Having such public funding ready in advance helps prevent the disorderly failure of a systemic bank or costly bailouts.
This peer review looks at the implementation of the FSB’s policies related to the establishment of public sector backstop funding mechanisms to provide temporary funding to banks in resolution, if necessary, as a last resort. The peer review evaluates:
- whether a credible PBF mechanism exists and can deliver temporary liquidity at the scale and speed likely to be needed for an orderly bank resolution;
- whether tools are in place for taxpayer losses to be recovered; and
- whether safeguards are in place to contain moral hazard and ensure the last resort nature of such mechanisms.
The review also identifies good practices, lessons and shared challenges for establishing PBF mechanisms and implementing Key Attribute 6 and the Guiding Principles; and makes recommendations addressed to FSB member jurisdictions and the FSB.
