A systemically important financial institution is a bank,
insurance company, or other financial institution whose failure might trigger a
financial crisis. As the 2007-2012 global financial crises has unfolded, the
international community has moved to protect the global financial system
through preventing the failure of SIFIs, or, if one does fail, limiting the
adverse effects of its failure. In November 2011, the Financial Stability Board
published a list of global systemically important financial institutions.
The Basel Committee on Banking Supervision introduced new
regulations (known as Basel III) that also specifically target SIFIs. The main
focus of the regulations is to increase bank capital requirements and to
introduce capital surcharges for systemically important banks. However, some
economists have warned that the tighter Basel III capital regulation, which is
primarily based on risk-weighted assets, may further negatively affect the stability
of the financial system. It's important to note that both the Financial
Stability Board and the the Basel Committee are only policy research and
development entities.
They do not establish laws, regulations or rules for any
financial institution directly. They merely act in an advisory capacity. It's
up to each country's specific lawmakers and regulators to enact whatever
portions of the recommendations they deem appropriate. Each country's internal
financial regulators make their own determination of what is a Systemically
Important Financial Institution. Once those regulators make that determination,
they set the exactly what specific laws, regulations and rules will apply to
those entities.
