We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What Is a Systemically Important Financial Institution?

Jim B.
Updated Feb 11, 2024
Our promise to you
WiseGeek is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At WiseGeek, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject-matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

A systemically important financial institution is an institution such as a bank that is deemed so important that the economy would feel a significant impact if it should collapse. As a result, these institutions are generally regulated and overseen to prevent that sort of financial calamity from occurring. One general requirement of a systemically important financial institution is that it keeps enough capital in reserve to be available should a financial emergency strike. While regulation of these institutions is important, it is also important that they be able to conduct business without too many restraints so that they still have the leverage to stimulate the economy which they serve.

Within a global economy, it is unlikely for any financial event to occur in a vacuum. Something that affects a major bank in one country will likely cause a chain reaction that will impact all banks all over the world. For that reason, these financial institutions must be monitored to make sure they are not acting recklessly and putting the fortunes of many people in jeopardy. An institution that is particularly impactful is known as a systemically important financial institution.

As the name implies, a systemically important financial institution is one that is of paramount importance to an entire economic system. This might be the case on a local level, such as a bank which serves a community. It can also occur on a worldwide level, since a handful of banks and other financial firms transact astronomical sums of money in the course of business every single day. The collapse of one of these institutions could lead to a ripple effect that would shake economies all over the world.

In the United States, the Dodd-Frank Act of Congress in 2010 was tailored specifically to make sure that a systemically important financial institution would not collapse and affect the economy as a whole. One of the key requirements is that the large banks and other firms categorized as systemically important keep a certain amount of capital in reserve at all times. Transactions of these firms are also scrutinized to prevent any sort of damaging activity.

The one caveat with regulating a systemically important financial institution in this manner is that is could cause an excess of caution. If these firms are restrained too much, the result could be a stagnant economy, with customers unable to borrow and small businesses unable to invest. Regulators must find a middle ground that allows these institutions to operate while still keeping close tabs on their business dealings.

WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Link to Sources
Jim B.
By Jim B.
Freelance writer - Jim Beviglia has made a name for himself by writing for national publications and creating his own successful blog. His passion led to a popular book series, which has gained the attention of fans worldwide. With a background in journalism, Beviglia brings his love for storytelling to his writing career where he engages readers with his unique insights.
Discussion Comments
Jim B.
Jim B.
Freelance writer - Jim Beviglia has made a name for himself by writing for national publications and creating his own...
Learn more
WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.