GSIIs and the Framework for Macroprudential Supervision: Strengthening GSIIs and Reducing the Systemic Risks They Pose

This chapter focuses on the framework for GSIIs including how they are identified and the policy measures to be applied to them. This framework is a new and deeply controversial concept that has arisen in the context of the response of governments, central banks and financial and insurance regulators to the financial crisis. It forms part of the equally new, and no less controversial, wider framework for global SIFIs whether bank, insurance or non-bank. The effect of the SIFI framework is to put in place a regulatory regime for some banks, insurers and non-bank financial firms that is both different and more onerous than that which is in place for other banks, insurers or non-bank financial firms. If a SIFI fails, the subsequent harm to public policy objectives is comparable to, although larger in scale than, that which follows if a non-SIFI fails, but the idea that underlies the framework is based on the fact that it is a different kind of harm: more dangerous in its extent and more serious and pervasive in its consequences, and therefore requiring a different kind of public policy response. Without that public policy response SIFIs are said to be too big, too complex and too interconnected to be allowed to fail.