Resolving Systemically Important Financial Institutions and Markets

Adam Ketessidis

Chapter 12 in The New International Financial System:Analyzing the Cumulative Impact of Regulatory Reform, 2015, pp 307-314 from World Scientific Publishing Co. Pte. Ltd.

Abstract: In a free market economy, no one should be too big, too interconnected or too systemically important to fail. Nevertheless, as we saw the global financial crisis has demonstrated that some banks seem to escape from this concept. Though banks were in the center of the financial crisis, they are not the only species of systemically important financial institutions — the so called SIFIs — with the potential to create chaos in case of their distress or failure. SIFIs also comprise financial market infrastructures and insurers. What all SIFIs have in common is that under a worst-case-scenario, their threatened failure may leave public authorities with no option but to bail them out. This ‘de facto insolvency protection’ results in lower costs of capital for these SIFIs and may encourage them to take excessive risks…

Keywords: Financial Stability; Systemic Risk; Financial Regulation; Too-Big-to-Fail; Regulatory Burden; Financial Institutions (search for similar items in EconPapers)
Date: 2015
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