Financial Stability Fund to strengthen bank resolution framework

The Cabinet of Ministers on Monday approved the establishment of a Financial Stability Fund aimed at boosting the country’s bank resolution framework under the financial crisis management program led by the Central Bank of Sri Lanka (CBSL). 

To kick start the Financial Stability Fund, an initial nominal amount of Rs. 1 billion will be allocated by the Finance, Economic Stabilisation, and National Policies Ministry. 

“The fund will be gradually built up through annual budgetary allocations, adhering to financial limitations,” Cabinet Spokesman and Minister Bandula Gunawardena said at the weekly post-Cabinet meeting media briefing yesterday. 

The Financial Stability Fund, is a key measure under Section 15 of the Banking (Special Provisions) Act No. 17 of 2023, is designed to ensure the smooth resolution of financial institutions in crisis, safeguarding financial stability in the country. Under Section 15(2) of the Act, the Financial Stability Fund will be managed independently, separate from the other assets held and regulated by the CBSL.

The urgency of establishing the Financial Stability Fund stems from its inclusion as a priority policy procedure in the second subprogram of the financial sector stability and reform program. 

This initiative is also supported by a $ 200 million loan from the Asian Development Bank (ADB) to implement effective resolution procedures, backed by comprehensive guidelines.

Gunawardena said the Financial Stability Fund is expected to play a crucial role in enhancing Sri Lanka’s financial crisis management framework, ensuring the stability of the banking sector.

The proposal was presented by President Ranil Wickremesinghe in his capacity as Minister of Finance, Economic Stabilisation, and National Policies.