WHY SRI LANKA NEEDS AN EFFICIENT RESOLUTION FRAMEWORK

When a financial institution fails, the consequences extend far beyond its shareholders. Depositors may lose their lifetime savings, creditors may face losses on their investments and businesses dependent on credit or payment services may experience sudden disruptions. The resulting uncertainty can undermine confidence in the financial system as a whole.

- 

In Sri Lanka, banks and finance companies play a central role in financial intermediation, mobilizing savings and extending credit. With deposits in these institutions amounting to over Rs. 20 trillion by mid-2025, the sector holds the financial lifeblood of the economy.

The failure of even a single institution can therefore create ripple effects across the system, eroding depositor trust, restricting access to credit and triggering broader economic instability. Past experiences with distressed finance companies in Sri Lanka have shown that such events can take years to resolve, often leaving depositors and creditors uncertain about recovering their funds. These lessons underscore why managing institutional failures in an orderly and predictable manner is essential to maintaining public confidence.

It is in this context that a resolution framework becomes critically important, providing the legal and operational tools for authorities to intervene early, manage distress and ensure that failures are addressed without destabilizing the financial system or burdening taxpayers.

What is a Resolution Framework