The Cabinet of Ministers has approved the creation of a Financial Stability Fund to enhance Sri Lanka’s bank resolution framework as part of the financial crisis management program led by the Central Bank of Sri Lanka (CBSL). This initiative aims to safeguard the stability of the country’s financial institutions during crises.
Financial Stability Fund
To kick-start the Financial Stability Fund, the Ministry of Finance, Economic Stabilisation, and National Policies will allocate an initial amount of Rs. 1 billion. According to Cabinet Spokesman Bandula Gunawardena, the fund will be gradually built up through annual budgetary allocations, ensuring compliance with financial constraints.
The Financial Stability Fund is a key component of the Banking (Special Provisions) Act No. 17 of 2023, which focuses on ensuring the smooth resolution of troubled financial institutions. This fund will operate independently, separate from other assets regulated by the CBSL, as outlined in Section 15(2) of the Act.
The establishment of the Financial Stability Fund is urgent, as it has been included as a priority policy measure under the second phase of the Financial Sector Stability and Reform Program. Additionally, the initiative is supported by a $200 million loan from the Asian Development Bank (ADB), which will help implement effective financial institution resolution procedures backed by comprehensive guidelines.
Minister Gunawardena emphasized that the Financial Stability Fund will play a critical role in strengthening Sri Lanka’s financial crisis management framework and ensuring the stability of the banking sector.
The proposal for the establishment of the Financial Stability Fund was presented by President Ranil Wickremesinghe, who serves as the Minister of Finance, Economic Stabilisation, and National Policies. This move reflects the government’s commitment to bolstering financial security and building investor confidence.
By creating this fund, Sri Lanka aims to enhance its ability to handle future financial crises and protect the country’s economy from potential risks.
