Bambang Pamungkas
Jakarta, CNBC Indonesia — Indonesia has been formally categorized as a country that remains inadequately prepared to handle the potential collapse of a major financial institution, according to a sweeping global assessment. The critical evaluation was delivered by the Financial Stability Board (FSB), an international body that monitors and makes recommendations about the global financial system.
Drawing from insights initially highlighted in a report by the Financial Times, the FSB evaluation places Indonesia into the "materially non-compliant" tier. This classification indicates that the Southeast Asian archipelago has yet to fully implement international recommendations concerning public sector backstop mechanisms—crucial fiscal safety nets designed to fund or manage the resolution of failing systemic banks without resorting to chaotic nationalizations or risking broader economic contagion.
The comprehensive FSB review scrutinized 19 major global jurisdictions and delivered a stark conclusion: four out of five major economies are currently unprepared to manage the disorderly failure of a large, interconnected financial institution. Consequently, the regulatory body has issued an urgent call for governments worldwide to implement immediate corrective measures. These steps are necessary to establish credible public funding mechanisms that can act as a lender of last resort, ensuring that a failing bank can be safely liquidated, restructured, or acquired without destabilizing the wider economy.
A Global Divided: Who Passed and Who Failed the FSB Assessment?
Out of the 19 jurisdictions examined in the rigorous review, a mere four achieved full compliance. The United States, the United Kingdom, Japan, and Hong Kong were deemed fully compliant because they possess robust, pre-established liquidity facilities and statutory frameworks capable of supporting large banks engulfed in acute crises.
Positioned one tier lower is the "largely compliant" category, which includes Canada, South Korea, Mexico, Singapore, and South Africa. Notably, Singapore stands out as the sole Southeast Asian nation in the assessment to achieve a compliance rating superior to Indonesia’s, reflecting its highly developed regulatory infrastructure and deep financial safety nets.
Indonesia finds itself situated in the third, larger tier, categorized alongside Australia, Brazil, China, the European Banking Union, Saudi Arabia, Switzerland, and Turkey. Comprising eight jurisdictions, this group represents the largest cohort in the FSB’s study, highlighting a widespread global hesitation or structural delay in establishing public sector backstops.
At the bottom of the spectrum are India and Argentina, both labeled as "non-compliant." According to the FSB, these nations lack sufficient public sector facilities to supply the emergency liquidity required during a severe banking crisis.
The Credibility Gap and the Legacy of the 2008 Financial Crisis
The latest findings from the FSB underscore a persistent vulnerability within the global financial architecture, arriving nearly two decades after the cataclysmic 2008 global financial crisis. Despite sweeping regulatory overhauls implemented in the wake of that era—such as higher capital requirements and "bail-in" tools designed to shift losses from taxpayers to investors—the FSB’s findings reveal that governments still lack one of the most critical instruments required during a systemic panic.
The core issue highlighted by the board is one of credibility. The FSB discovered that less than half of the reviewed jurisdictions possess mechanisms that are simultaneously clear, adequately scaled to provide liquidity in systemic volumes, and capable of being deployed in a timely manner.
"Having a credible public sector backstop funding mechanism is essential," noted Soledad Núñez, Deputy Governor of the Bank of Spain, who spearheaded the oversight project. Núñez emphasized that substantial work remains across numerous nations to fully integrate and operationalize the FSB’s policy recommendations.
Furthermore, the board cautioned that legal frameworks alone are insufficient to guarantee financial stability. While modern resolution strategies grant regulators the legal authority to impose losses on shareholders and recapitalize failing systemic institutions, the FSB stressed that executing these strategies can be exceptionally difficult—or practically impossible—without temporary public funding bridges to keep day-to-day operations running.
Lessons from the Credit Suisse Collapse of 2023
When a systemically important financial institution faces a sudden loss of confidence, massive liquidity demands materialize almost instantly as panicking depositors withdraw funds and nervous creditors call in loans. This exact scenario played out dramatically in the spring of 2023 during the near-collapse of Credit Suisse, one of Europe’s oldest and most prominent investment banks.
To prevent an uncontrolled implosion that could have sent shockwaves through the global financial ecosystem, the Swiss central bank was forced to orchestrate a rescue package, extending massive emergency liquidity assistance and loans totaling 168 billion Swiss francs. This financial lifeline kept the institution solvent long enough for authorities to broker an emergency acquisition by its domestic rival, UBS. The massive loans were subsequently repaid or canceled within months, averting an immediate systemic disaster.
However, the FSB’s analysis of the Credit Suisse episode reveals the nuanced reality of crisis preparedness. While Switzerland demonstrated a "high level of operational readiness" in executing the bailout, the intervention relied heavily on emergency decrees issued under immense pressure. Meanwhile, permanent statutory rules governing public liquidity backstops in Switzerland remain subjects of ongoing debate in parliament. This procedural gap explains why Switzerland remains classified in the "materially non-compliant" group, sharing a category with nations like Indonesia.
Similarly, the European Banking Union—representing 21 member states—has accumulated more than 81 billion euros in its Single Resolution Fund (SRF) to handle failing banks. Yet, the FSB report flagged potential vulnerabilities, noting that the fund’s capacity remains constrained by uncertainties regarding its ability to quickly raise additional capital from debt markets if its reserves are entirely depleted during a multi-institution crisis.
Defensive Reactions and Institutional Perspectives
The release of the FSB report has prompted varying responses from international financial authorities, reflecting the complex domestic political and economic landscapes in which banking regulators operate.
In Latin America, representatives from the Central Bank of Argentina publicly contested the findings, arguing that the FSB’s methodology failed to capture the unique realities of the Argentine financial system. Following decades of macroeconomic volatility and structural reforms under President Javier Milei, Argentina’s private credit market has shrunk significantly compared to its global peers.
"The capitalization levels of Argentine banks far exceed international averages, and the central bank more than complies with international liquidity standards," a central bank spokesperson stated, asserting that traditional metrics of systemic bank failure do not apply in the same manner to Argentina’s current economic setup.
Broader Implications for Indonesia and Emerging Markets
For emerging economies like Indonesia, the FSB’s "materially non-compliant" rating serves as both a regulatory warning and a roadmap for domestic financial reform. Indonesia’s banking sector has demonstrated notable resilience in recent years, supported by strong economic growth, solid capitalization ratios, and proactive oversight by Bank Indonesia and the Financial Services Authority (OJK).
However, the lack of a fully compliant public sector backstop exposes a structural vulnerability. In the event of an extreme global shock or a localized systemic crisis involving a domestic systemically important bank (D-SIBs), Indonesian authorities might find their administrative and fiscal toolkits constrained by existing statutory limitations regarding emergency public funding.
Financial analysts point out that establishing credible public backstops in emerging markets involves a delicate balancing act. While a robust safety net prevents panic and contagion, it also introduces the risk of moral hazard—where banking executives might take excessive risks, assuming the government will ultimately absorb the cost of failure.
To address the FSB’s concerns, Indonesian regulators face the ongoing challenge of refining resolution frameworks, strengthening deposit insurance schemes, and establishing clear, pre-legislated protocols for emergency liquidity injections. Doing so will not only improve the country’s standing in future global stability assessments but will also reinforce domestic and international confidence in the resilience of Indonesia’s financial sector against unforeseen macroeconomic turbulence.
