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14 Vladislav Pavlat

posed a senes of unanswered ąuestion. It was, for example, not quite elear, whether all big financial companies should be regulated by the same rules, whether SIFIs regulation should not be extended to all big non-financial companies, whether a list of SIFIs should be published, which regulatory agency should be in charge of regulation etc.

The size would serve as the basie indicator for identification of a SIFI. For example: “a financial firm would be considered systemically important, if it accounts for at least 10 percent of the activities or assets of a principal financial sector or financial market or 5 percent of total financial market activities or assets”. These figures should be taken both as flexible “standards” and “thresholds” for SIFIs identification first step.

Then a second identification step was supposed to follow: the evaluation of the above mentioned “four C’s”. How these standards were defined? Con-tagion means the well-know “domino-effect”: it can have many different forms, such as failure of payments etc. Correlation means a correlation risk: the big companies are inclined to take on risks that are highly correlated with other big companies because of a Iow probability of being “punished” by regula-tory/supervisory authorities (i.e. the old TBTF problem). Concentration”: “A financial institution is systemically important if its failure could materially disrupt a financial market or payments system, causing economically significant spill-over effects that impede the ftinctioning of broader financial markets and/or the real economy.” (Standards: The firm clears and settles morę than 25% of trades in a key financial market; is responsible for morę than 30% of an important credit activity.) Conditions/Context: If a firm or a group probably (under given economic conditions) becomes systemically important, it is necessary to set criteria, how to evaluate the probability of this event, and to fix a threshold for systemie importance based on the “four C’s”. The application of these thresholds would be dependent on the type of systemie importance of the firm or a group.

The logical way ffom “identification” leads to “classification”, i. e. to de-fining several categories differentiated according to the systemie importance. Within each category, every financial institution would be subject to equivalent regulatory treatment and intensity of supervision. The idea of this classification was primarily based on the Brunnemeier et al. Geneva Report on the World Economy⁴. It was proposed to set up 5 SIFIs categories (according to the above SIFIs identification criteria): Category 1 - size alone or concentration; Category 2 - interconnectedness; Category 3 - groups with correlated risk-exposure; Category 4 - large financial firms that are not systemically important, but whose