10 October 2023

FSB review of 2023 bank failures assesses implications for the operation of the international resolution framework

• Review upholds the appropriateness and feasibility of the international resolution framework for global systemically important banks (G-SIBs).

• Credit Suisse failure highlights some important lessons learnt for the effective operationalisation and implementation of the G-SIB resolution framework, including the need for an effective temporary public sector liquidity backstop and operational readiness of banks to access it as a last resort.

• FSB will conduct further work on the implementation of the resolution framework for G-SIBs and other systemically important banks.

The Financial Stability Board (FSB) today published a review of the 2023 bank failures and assessment of potential implications for the operation of the international resolution framework as set out in the FSB’s Key Attributes of Effective Resolution Regimes for Financial Institutions. The report identifies preliminary lessons learnt for the Key Attributes’ framework for resolving G-SIBs and other systemically important banks, drawing on an analysis of the Credit Suisse case and the recent bank failures in the United States.

The review upholds the appropriateness and feasibility of the international resolution framework, concluding that the framework provided the Swiss authorities with an executable alternative to the solution that they deemed preferable in the case of Credit Suisse. Nevertheless, the report identifies several areas for further analysis and improvements in the operationalisation and implementation of the international resolution framework. Among these are the need for an effective temporary public sector liquidity backstop and operational readiness of banks to access that as a last resort. Firms and authorities also need to (i) address the legal issues identified in the execution of bail-in across borders during resolution planning; (ii) better operationalise a range of resolution options such as transfer and sale of business tools alone or in combination with bail-in; and (iii) understand the impact of bail-in on financial markets. In addition, authorities should continue to prioritise testing and simulating effective decision making and execution at domestic and international levels. They should also extend their communication and coordination efforts outside of the core crisis management group.

The failures of Silicon Valley Bank (SVB), Signature Bank and First Republic Bank showed that banks not identified as G-SIBs can still be systemically significant or critical upon failure. The three US regional banks were effectively resolved without bailing out shareholders and unsecured creditors. Nevertheless, a number of issues deserve attention as part of the FSB’s future work. These include the need to explore whether the scope of resolution planning requirements and loss-absorbing capacity requirements needs to be expanded; how resolution authorities can be better prepared for the increased speed of bank runs due to, for example, 24/7 payments, mobile banking and the use of social media; and the implications of recent events for the role of deposit insurance in resolution arrangements.

FSB

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