Understanding Systemic Risk in Global Financial Markets

CHAPTER 9Systemically Important Entities

INTRODUCTION

A systemically important entity is an entity whose failure would cause financial instability that would threaten the economy. In this chapter we explore systemically important entities in depth, including Systemically Important Financial Institutions (SIFIs), Systemically Important Financial Market Utilities (SIFMUs), and Globally Systemically Important Banks (G-SIBs).

After you read this chapter you will be able to:

• Explain what makes an entity systemically important.
• Understand the role of the U.S. Financial Stability Oversight Council.
• Describe bank SIFIs, nonbank SIFIs, and SIFMUs and the requirements they face.
• Describe G-SIBs and the requirements they face.
• Understand how financial stability rules impact different types of banks.

INTRODUCTION TO SYSTEMICALLY IMPORTANT ENTITIES

A systemically important entity can be broadly defined as an entity whose failure would cause financial instability that would threaten the economy. There is widespread sentiment that one of the drivers of the credit crisis of 2007–2009 was the failure of financial regulators to adequately identify systemically important entities. Consequently there is now intense focus on both identifying systemically important entities and placing burdensome regulatory oversight and requirements on such entities.

The characterization of an entity as systemically important can be a function of a number of factors. James Thomson of the Federal Reserve Bank ...