Exceptional Public Solvency Support to the Banking Sector: Pitfalls and Good Practice

Technical Notes and Manuals, August 8, 2025

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Banking sector distress can be highly disruptive, with substantial implications for financial intermediation and economic growth.
Authorities have often relied on public funds to safeguard financial stability during systemic crises; the global financial crisis prompted substantial government support to ailing banks.
A new international standard for resolution regimes—the Key Attributes of Effective Resolution Regimes—has reduced reliance on bailouts, but exceptional public solvency support may still be needed as a “last resort,” notably when initiating resolution amid systemic distress could generate confidence shocks and/or fuel contagion.
This Technical Guidance Note provides guidance on design and implementation of arrangements for providing exceptional public solvency support as a last-resort option.

Solvency support as part of crisis management and bank restructuring programs can be used to preserve financial stability when other options risk triggering wider confidence shocks or contagion.
The note situates solvency support relative to resolution regimes and other crisis tools, emphasizing its exceptional nature.

The note discusses minimum conditions under which solvency support should be considered.
It outlines key modalities for providing solvency support (design and implementation elements) to ensure such support is targeted, temporary, and minimizes moral hazard.

Guidance is provided on governance arrangements and shareholder-management practices when the government takes temporary equity stakes in financial institutions.
The objective is to balance effective control to protect public finances with preserving incentives for restructuring and return to private ownership.

Subject: Bank resolution framework, Bridge bank, Financial crises, Financial sector policy and analysis, Financial sector stability, Solvency
Keywords: bank resolution, Bank resolution framework, bank restructuring program, bank solvency, banking sector distress, banks and banking, Bridge bank, crisis management, data IMF Library, financial crises, financial crisis preparedness, financial institutions, financial sector policy and analysis, financial sector stability, Global, IMF's Monetary, public policy, Solvency, solvency support, support to the banking sector, UK Government investment