Systemically Important Financial Institution – SIFI

AAA

DEFINITION of '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.

BREAKING DOWN 'Systemically Important Financial Institution – SIFI'

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.

RELATED TERMS
  1. Dodd-Frank Wall Street Reform and ...

    A compendium of federal regulations, primarily affecting financial ...
  2. Too Big To Fail

    The idea that a business has become so large and ingrained in ...
  3. Bailout

    A situation in which a business, individual or government offers ...
  4. Federal Reserve Board - FRB

    The governing body of the Federal Reserve System. The seven members ...
  5. Insolvency

    When an individual or organization can no longer meet its financial ...
  6. Maintenance Margin

    The minimum amount of equity that must be maintained in a margin ...
Related Articles
  1. Insurance

    Should You Buy Banks' "Toxic" Assets?

    The Public-Private Investment Progam is part of the government's effort to fix the failing financial sector. But is it a good investment?
  2. Home & Auto

    From Booms To Bailouts: The Banking Crisis Of The 1980s

    The economic environment of the late 1970s and early 1980s created the perfect storm for a banking crisis.
  3. Economics

    The Pitfalls Of Financial Regulation

    Regulatory actions usually have lofty intentions that end up with unintended and negative consequences.
  4. Retirement

    Is The U.S. Government Too Big To Fail?

    Some think that the U.S. government is too big to fail, but one must only look at historical examples to know that it's not true.
  5. Insurance

    Fannie Mae, Freddie Mac And The Credit Crisis Of 2008

    Is the U.S. Congress' failure to rein in these mortgage giants to blame for the financial fallout?
  6. Investing News

    Job Report Brings Fed Rate Hike Into Question

    On Friday, the U.S. Bureau of Labor Statistics released its report on employment situation in the U.S. for the month of August. According to the report, the U.S. added 173,000 jobs, falling short ...
  7. Investing News

    China's Government to Stop Intervening in Stock Markets

    China’s stock market, measured by Shanghai Composite Index, lost about 17% of its value in the first three days of week ending August 28, 2015 before recovering its value by 11% in the last two ...
  8. Investing News

    Timing of the Fed Interest Rates Hike

    Until the beginning of August, Fed watchers expected the central bank to raise rates in September. However, recent news pertaining to China’s slowing economy and its devaluation of the yuan have ...
  9. Professionals

    Holding Out for Capital Gains Could Be a Mistake

    Holding stocks for the sole purpose of avoiding short-term capital gains taxes may be a mistake, especially if all the signs say get out.
  10. Term

    Understanding the Maintenance Margin

    A maintenance margin is the minimum amount of equity that must be kept in a margin account.
RELATED FAQS
  1. How is the Federal Reserve audited?

    Contrary to conventional wisdom, the Federal Reserve is extensively audited. Politicians on the left and right of a populist ... Read Full Answer >>
  2. Who decides when to print money in the US?

    The U.S. Treasury decides to print money in the United States as it owns and operates printing presses. However, the Federal ... Read Full Answer >>
  3. Why do some people claim the Federal Reserve is unconstitutional?

    The U.S. Constitution does not mention the need for a central bank, nor does it explicitly grant the government the power ... Read Full Answer >>
  4. How can the federal reserve increase aggregate demand?

    The Federal Reserve can increase aggregate demand in indirect ways by lowering interest rates. Aggregate demand is a measure ... Read Full Answer >>
  5. How does the stock market react to changes in the Federal Funds Rate?

    The stock market reacts to changes in the federal funds rate in various ways depending on where it is in the business cycle. ... Read Full Answer >>
  6. How does the bond market react to changes in the Federal Funds Rate?

    The bond market is highly sensitive to changes in the federal funds rate. When the Federal Reserve increases the federal ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Depreciation

    1. A method of allocating the cost of a tangible asset over its useful life. Businesses depreciate long-term assets for both ...
  2. Recession

    A significant decline in activity across the economy, lasting longer than a few months. It is visible in industrial production, ...
  3. Bubble Theory

    A school of thought that believes that the prices of assets can temporarily rise far above their true values and that these ...
  4. Stock Market Crash

    A rapid and often unanticipated drop in stock prices. A stock market crash can be the result of major catastrophic events, ...
  5. Financial Crisis

    A situation in which the value of financial institutions or assets drops rapidly. A financial crisis is often associated ...
  6. Election Period

    The period of time during which an investor who owns an extendable or retractable bond must indicate to the issuer whether ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!