Discussion Paper

On systemically important financial institutions and progressive systemic mitigation

Abstract: One of the most important issues in the regulatory reform debate is that of systemically important financial institutions. This paper proposes a framework for identifying and supervising such institutions; the framework is designed to remove the advantages they derive from becoming systemically important and to give them more time-consistent incentives. It defines criteria for classifying firms as systemically important: size (the classic doctrine of too big to let fail) and the four Cs of systemic importance (contagion, concentration, correlation, and conditions); it also discusses the concept of progressive systemic mitigation.

Keywords: Financial institutions; Systemic risk; Financial stability;

Bibliographic Information

Provider: Federal Reserve Bank of Cleveland

Part of Series: Policy Discussion Papers

Publication Date: 2009

Issue: Aug

Order Number: 27