Identifying Non-bank, Non-insurer Global Systemically Important Financial Institutions
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This short chapter tables the question about the qualification of which financial institutions (FI) are ‘systemically important’ (SIFI). Given the high concentration of transactions engaged in by a limited number of market participants, those entities require additional supervision and often additional capital charges simply for being that omnipresent in the global financial network. Some banks and insurers are domestically important and others are so on a global level. For those that don’t qualify as a bank or insurers, they created the designation non-bank non-insurance company (NBNI SIFI). And so criteria were developed to identify them and treat them accordingly. That is harder than it sounds as size and the nature of the transactions engaged in often says very little about the systemic nature of an institution. And so were the initial 2014 rules already revised in 2016. It will stay an ongoing effort with no guarantee of completeness or ultimate accuracy. But where does it leave shadow banking? Most shadow banking entities are not labeled as a bank or insurance company. But most shadow banking activities occur within larger financial groups designated as banks. And with business models changing constantly and being spread out over a variety of (inter)national entities, qualification and treatment need to be continuously revisited.