Japan: Financial Sector Assessment Program-Technical Note on Financial Safety Net and Crisis Readiness

This technical note discusses Financial Safety Net and Crisis Readiness for the Japan Financial Sector Assessment Program. Better-structured crisis readiness efforts are needed to ensure that the financial authorities can deliver prompt and effective resolution outcomes. The resolution framework should be further strengthened along several other dimensions. More banks should be subjected to Recovery and Resolution Planning, supported by comprehensive planning guidance. Staffing resources and decision-making structures should be commensurate with further enhancements in the crisis readiness framework and the need to manage bank resolutions in an increasingly complex financial system. Many aspects of the emergency liquidity assistance (ELA) practices at the Bank of Japan (BOJ) are robust, but some components of the ELA framework could be improved. Finally, the BOJ should consider expanding ELA eligibility to systemically important non-bank financial institutions, prioritizing central counterparties given their pivotal role in ensuring the stability and efficiency of financial markets.