Systemically Important Bank
AdvancedA systemically important bank is a bank whose size, complexity, interconnectedness or importance to the financial system is such that its failure could cause serious damage to the wider economy.
After the 2008 financial crisis, regulators recognised that some banks were too big to fail, so governments felt compelled to rescue them. To reduce this problem, regulators identify systemically important banks and apply stricter rules to them.
At the global level, the Financial Stability Board publishes an annual list of global systemically important banks, often called G-SIBs, based on factors such as size, cross-border activity, interconnectedness, complexity and how hard they would be to replace. National regulators also identify domestic systemically important banks.
These banks must hold additional capital buffers, meet stricter requirements on loss-absorbing debt, undergo more intense supervision and stress testing, and prepare detailed plans for how they could be resolved without taxpayer support.
For example, a large global bank operating in dozens of countries, with trillions of dollars in assets and deep links to other financial institutions, would be designated as a G-SIB and required to hold extra capital above standard minimums. The aim is to reduce both the likelihood and the impact of failure.
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