Thematic Review on Public Sector Backstop Funding Mechanisms: Peer Review Report (Financial Stability Board)

Summary

• Only 4 (21%) of reviewed jurisdictions are fully compliant with KA 6, while 8 (42%) are materially non-compliant.p.26
• In Japan, the Deposit Insurance Corporation of Japan has pre-arranged access to government guarantees of up to JPY 35 trillion.p.18
• Under Title II of the Dodd-Frank Act in the United States, the Orderly Liquidation Fund allows the FDIC to immediately access and provide funding amounting to 90 percent of a firm's total consolidated assets available for repayment.p.17
• During the bank failures of March 2023, deposit outflows reached 20 to 30 per cent of deposits in a single day, which was two to three times faster than peak one-day outflows in past runs.p.28

Key insights

1. Implementation of Key Attribute 6 remains uneven across member jurisdictions, with most identified gaps relating to mechanism credibility and operational readiness.p.6
2. Jurisdictions demonstrating the greatest funding scale feature pre-arranged access to flexible public resources that extend beyond statutory borrowing caps or ex-ante funds.p.6
3. A number of jurisdictions lack cross-authority testing and documented operational protocols required to deploy backstop liquidity under compressed resolution timelines.p.7
4. Although loss-recovery legal powers exist widely, incomplete implementation in several jurisdictions leaves taxpayers exposed to residual loss risks.p.7
5. Establishing clear conditions for accessing temporary public funds mitigates moral hazard without removing authority flexibility during systemic resolution.p.7
6. Cross-border resolutions of internationally active banks face heightened liquidity risks due to foreign currency constraints and potential home-host ring-fencing.p.7