A term that emerged around 2009 for a bank that – is of considerable size, – is of crucial importance to the global financial system and is therefore – almost impossible to replace. – In 2010, the Financial Stability Board paid particular attention to these institutions. Their loss-bearing capacity is to be increased by various measures, such as a higher capital requirement that goes beyond Basel III. – Admittedly, the different legal systems and accounting rules around the world make such a plan difficult. It is also to be feared that the Sifis will shift their business to hitherto unregulated peripheral areas of the financial market, such as hedge funds and private equity funds. Moreover, it is not said that even with a substantially strengthened capital base, a sifi could not collapse. – The problem with sifis is that they are widely perceived as having a government guarantee. As a result, they can refinance themselves cheaply; thus, by receiving a free state guarantee of existence, sifis gain an unfair competitive advantage. At the same time, they have an incentive to make risky investments in order to collect the profits and pass on any losses to the state. – In Switzerland, the two G-Sifis USB and Credit Suisse had to be bailed out by the state after losses of around CHF 30 billion in 2008. In 2008, the total assets of the two institutions amounted to about six times the Swiss gross domestic product. The collapse of one of the two banks could have led the Swiss Confederation as a whole into national bankruptcy. In view of this, in 2010 the capital ratio for the big banks was set at nineteen percent of risk-weighted assets – compared with ten and a half percent under Basel III – of which ten percent was hard equity and nine percent in the form of contingent convertible bonds. If a bank’s capital ratio falls below a certain threshold, the previous bondholders automatically become shareholders and thus participate directly in the risk. – See resolvability, bank, systemic, bank size, optimal, financial market interdependence, proprietary trading ban, contingent loss, financial stability, size confidence, Lehman failure, margin pressure, minimum requirements for the design of recovery plans, Money-matters theorem, moral hazard, mandatory convertible bond, restructuring management, risk shield law, debt bomb, Sifi oligopoly, stability fund, European, systemic relevance, too big to fail principle. – Cf. BaFin Annual Report 2011, p. 50 ff. (report on international efforts to identify and regulate sifis).
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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
E-mail address: info@ekrah.com
https://de.wikipedia.org/wiki/Gerhard_Ernst_Merk
https://www.jung-stilling-gesellschaft.de/merk/
https://www.gerhardmerk.de/