Indonesia Not Fully Prepared for the Failure of a Major Bank

The Financial Stability Board says Indonesia is not fully prepared to manage the failure of a major bank.

It reviewed 19 jurisdictions and found that only the United States, the United Kingdom, Japan and Hong Kong fully met its recommendations.

The recommendations call for a credible public funding backstop that can provide emergency liquidity to a failing bank.

That funding can help authorities wind down or sell a bank safely without nationalising it.

Indonesia was grouped with Australia, Brazil, China, the European Banking Union, Saudi Arabia, Switzerland and Turkey as materially non-compliant.

The FSB says legal powers alone may not be enough if authorities cannot quickly access temporary funding on the scale needed.

The experience of Credit Suisse in 2023 showed how quickly a major bank may need large emergency loans to stay afloat while a sale is arranged.

The FSB is calling on many jurisdictions to take urgent action, but no specific next step for Indonesia is given.