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Re-shaping the Global Financial Architecture: Dual SIFIs' Role

failure could have economically significant implications for regional economies; Category 5 - fmancial institutions not included in the other categories, consist-ing primarily of community fmancial institutions¹.

Later on, the categorization of fmancial companies was partially abandoned; however, some of its rationale was projected into the US Financial Regulation Reform and to the Basel Committee on Banking Stability proposals in the form of the so-called Bucketing approach which implies the existence of two SIFIs’ categories”: 1. A global SIFI, big in size and affecting the world, called G-SIFI (for Global SIFIs). 2. A national SIFI affecting only its home country. The Bucketing method consists in distinguishing G-SIFIs from various fmancial institutions, based on systemie importance estimations. The Committee buckets the fmancial institutions according to quantitative measures and ąualita-tive measures. Different policies and regulations will be applied to each bucket.

“A SIFI is a finn whose disorderly failure would cause significant dis-ruption to the wider fmancial system and to overall economic activity because of its size, complexity and systemie interconnectedness”².

Systemie significance of a big fmancial company or of a fmancial group/ conglomerate can be characterized by the following features: 1. Size, 2. Interconnectedness, 3. Substitutability, 4. Global activity, 5. Complexity³. It is evident that these components considerably differ from the first approaches to SIFIs identification (see Thomson, Cleveland)⁴.

3. SIFIs Regulation and Supervision

There are many ąuestions to be solved before a feasible and an efficient SIFIs regulation will be possible to achieve. Since the end of 90ties a discussion on these ąuestions is going on. Problem is to find suitable regulatory measures and instruments minimising potential negative effects expected in case a combi-nation of these measures and instruments is used. There are certain advantages and disadvantages of SIFIs regulation and supervision both on the side of govemment regulatory' and supervisory institution and on the side of a SIFI (Table 2).

1

   M. Brumienneier. M. Crocket, Ch. Goodhart. A.D. Persaud. H. Shin: Fimdamental Principles of Financial Regulation. 2009. Geneva Reports on the World Economy.

2

   Annual Report.... op. cit.

3

   Ibid.

4

   J.B. Thomson: On Systemically Important Financial Institutions and Progressive Systemie Mitigation. Federal Reserve Bank of Cleveland. Policy Discussion Papers. Nurnber 27. August 2009. p. 7. http://w\vvv.clevelandfed.org/researcli/topics/finstability/three_tier_risk/