There has been progress in improving the ease with which failing financial firms can be wound up without a taxpayer bailout since the global financial crisis, but there are still gaps that must be addressed, the Basel, Switzerland-based Financial Stability Board (FSB) states in a new report.

“An important lesson of the global financial crisis was that it is insufficient for authorities to rely entirely on policies aimed at reducing the probability of individual financial firms failing,” the report states. “Since failure cannot be ruled out, it is vital to be able to contain spillovers by preserving the continuity of firms’ critical functions without taxpayers’ solvency support.”

The report notes that the introduction of measures such as total loss-absorbing capacity requirements for the world’s big banks, has improved their resolvability. But “challenges remain” in closing remaining gaps in bank resolution regimes.

At the same time, improving the resolution and resilience of central counterparties (CCPs) is also a policy priority for the FSB.

The international monitoring body plans to issue further guidance in this area, and says that it will launch a public consultation in the second quarter of 2020.

The report also points to particular challenges in the insurance sector due to internal interconnectedness within large insurance groups.

“Strengthening resolvability across all sectors remains necessary,” the report concludes.

“We have made significant progress in increasing resolvability, but the progress is uneven across sectors,” said Mark Branson, chair of the FSB’s resolution steering group and CEO of the Swiss Financial Market Supervisory Authority.

“The critical importance of CCPs to the overall safety and soundness of the financial system means that authorities must ensure that CCPs do not themselves become a source of systemic risk or contagion and that any systemically important CCP can be successfully resolved without resort to a government bailout,” Branson added.

“Beyond CCPs, remaining gaps that could affect the effective execution of resolution plans, either at a statutory level or in firms’ operational capabilities, also need to be closed,” he said.