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As the 2007-2012 global financial crisis has unfolded, the international community has moved to protect the global financial system through preventing the failure of SIFIs, or, if one does fail, limiting the adverse effects of its failure. In November 2011, the Financial Stability Board published a list of global systemically important financial institutions (G-SIFIs).
The Basel Committee on Banking Supervision introduced new regulations (known as Basel III) that also specifically target SIFIs. The main focus of the regulations is to increase bank capital requirements and to introduce capital surcharges for systemically important banks. However, some economists have warned that the tighter Basel III capital regulation, which is primarily based on risk-weighted assets, may further negatively affect the stability of the financial system.
It's important to note that both the Financial Stability Board and the the Basel Committee are only policy research and development entities. They do not establish laws, regulations or rules for any financial institution directly. They merely act in an advisory capacity. It's up to each country's specific lawmakers and regulators to enact whatever portions of the recommendations they deem appropriate. Each country's internal financial regulators make their own determination of what is a Systemically Important Financial Institution. Once those regulators make that determination, they set the exactly what specific laws, regulations and rules will apply to those entities.
Virtually every Systemically Important Financial Institution operates at the top level as a holding company made up of numerous subsidiaries. It's not unusual for the subsidiaries to number in the hundreds. Even though the uppermost holding company is located in the home country, where it is subject, at that level, to that home regulator, the subsidiaries may be organized and operating in several different countries. Each subsidiary is then subject to potential regulation by every country where it actually conducts business.
At present (and for the likely foreseeable future) there is no such thing as a global regulator. Likewise there is no such thing as global insolvency, global bankruptcy, or the legal requirement for a global bail out. Each legal entity is treated separately. Each country is responsible (in theory) for containing a financial crisis that starts in their country from spreading across borders. Looking up from a country prospective as to what is what is a Systemically Important Financial Institution may be different than when looking down on the entire globe and attempting to determine what entities are significant.
The degree of interconnectedness between financial institutions is almost completely unknown at any specific point in time. When trouble breaks out, fear and contagion effects are extremely unpredictable. Therefore determining exactly what entities are significant is a difficult assignment, as the real certainty is determinable only well after the fact.
As of November 2011, a standard definition of systemically important financial institution had not been decided. However, the Basel Committee has identified factors for assessing whether a financial institution is systemically important: its size, its complexity, its interconnectedness, the lack of readily available substitutes for the financial infrastructure it provides, and its global (cross-jurisdictional) activity. In some cases, the assessments of experts, independent of the indicators, will be able to move an institution into the SIFI category or remove it from SIFI status.
Global Systemically Important Banks (G-SIBs) are determined based on four main criteria: (a) size, (b) cross-jurisdiciton activity, (c) complexity, and (d) substitutability. The list of G-SIBs is published annually by the Financial Stability Board. The G-SIBs must maintain a higher capital level - capital surcharge - compared to other banks.
In 2012, the FSB updated the list of the G-SIB, and the follwing banks were included: Citigroup, Deutsche Bank, HSBC, JP Morgan Chase, Barclays, BNP Paribas, Bank of America, Bank of New York Mellon, Credit Suisse, Goldman Sachs, Mitsubishi UFJ FG, Morgan Stanley, Royal Bank of Scotland, UBS, Bank of China, BBVA, Groupe BPCE, Group Crédit Agricole, ING Bank, Mizuho FG, Nordea, Santander, Société Générale, Standard Chartered, State Street, Sumitomo Mitsui FG, Unicredit Group, Wells Fargo.
Compared with the group of G-SIBs published in 2011, two banks have been added (BBVA and Standard Chartered) and three banks removed: Dexia, as it is undergoing an orderly resolution process; Commerzbank and Lloyds, as result of a decline in their global systemic importance.
In the USA, the largest banks are regulated by the Federal Reserve (FRB) and the Office of the Comptroller of Currency (OCC). These regulators set the selection criteria, then mandate and oversee annual bank stress tests. See: Bank stress tests for results by year. 19 banks operating in the U.S. (at the top tier) have been selected since 2009 as systemically important, and therefore require annual stress testing. Those banks showing difficulty under the stress tests are required to raise capital levels. See also: List of systemically important banks
The Dodd-Frank Wall Street Reform and Consumer Protection Act requires that bank holding companies with total consolidated assets of $50 billion or more and nonbank financial companies designated by the Financial Stability Oversight Council for supervision by the Federal Reserve submit resolution plans annually to the Federal Reserve (FRB) and the Federal Deposit Insurance Corporation (FDIC). Each plan, commonly known as a living will, must describe the company's strategy for rapid and orderly resolution under the Bankruptcy Code in the event of material financial distress or failure of the company.
The top most group that must file resolution plans includes U.S. bank holding companies with $250 billion or more in total nonbank assets, and foreign-based bank holding companies with $250 billion or more in total U.S. nonbank assets. For 2012 this top most tier included: Barclays, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan, Chase, Morgan Stanley, State Street, and UBS. See: Resolution Plans
A list of Global Systemically Important Insurers (G-SIIs) is determined by the International Association of Insurance Supervisors (IAIS).
US government legislation defines the term financial market utilities (FMU) for other organizations that play a key part in financial markets such as clearing houses settlement systems. They are entities whose failure or disruption could threaten the stability of the financial system.