On Systemically Important Financial Institutions and Progressive Systemic Mitigation

13 Pages Posted: 17 Sep 2009

Date Written: August 17, 2009

Abstract

One of the most important issues in the regulatory reform debate is that of systemically important financial institutions. This paper proposes a framework for identifying and supervising such institutions; the framework is designed to remove the advantages they derive from becoming systemically important and to give them more time-consistent incentives. It defines the four C’s of systemic importance (contagion, concentration, correlation, and conditions) as criteria for classifying firms as systemically important that goes beyond binary classification based on size alone (the classic doctrine of too big to let fail); it also discusses the concept of progressive systemic mitigation.

Keywords: systemically important institutions, progressive systemic mitigation

JEL Classification: G21, G28

Suggested Citation

Thomson, James B., On Systemically Important Financial Institutions and Progressive Systemic Mitigation (August 17, 2009). FRB of Cleveland Policy Discussion Paper No. 7. Available at SSRN: https://ssrn.com/abstract=1474836 or http://dx.doi.org/10.2139/ssrn.1474836

James B. Thomson (Contact Author)

University of Akron ( email )

Akron, OH 44325-4803
United States

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