Systemically Important Bank
A systemically important bank is a financial institution whose failure could threaten the stability of the broader financial system.
Meaning in Practice
Such banks are typically large, interconnected, and complex. Regulators impose higher capital and supervisory requirements on them. They are often subject to additional stress testing and resolution planning.
Why It Matters
The failure of a systemically important bank can trigger contagion and systemic crisis. Enhanced oversight reduces the probability and impact of such events. This strengthens overall financial resilience.
Market Impact
Designation as systemically important may increase compliance costs but also signal institutional strength. Markets closely monitor capital buffers and supervisory assessments of these banks. Funding costs may reflect implicit expectations of state support.
Example
A globally active bank with extensive cross-border operations is classified as systemically important and required to hold additional capital.