Systemically Important Financial Institution – SIFI

Systemically Important Financial Institution – SIFI

Any firm as designated by the U.S. Federal Reserve, whose collapse would pose a serious risk to the economy. Systematically important financial institutions became the target of legislation and regulatory reform by the Obama Administration, due to issues concerning their consolidated supervision and regulation, following the financial crisis of 2008.

Economic risks can arise from the banking sector, but also from other financial organizations such as investment banks and insurance firms. New regulations under the Dodd-Frank legislation, mandate that financial institutions that fit SIFI qualifications, will have to meet higher capital standards and develop contingency plans for potential future failures.

Supervision and regulations of systemically important financial institutions is intended to prevent firms from becoming "too big to fail" and to prevent any assumptions that the government will provide financial support, in the event the firms do run into financial trouble. Many institutions have actively lobbied against being identified as a SIFI, because of the additional and significant regulatory requirements that SIFI firms will endure.

Factors for determining if a firm is a SIFI include size, if it accounts for a certain percentage of the activities of assets, of a financial sector or market, as well as contagion, correlation, concentration and conditions/context.

Investment dictionary. . 2012.

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