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On Systemically Important Financial Institutions and Progressive Systemic Mitigation

Policy Discussion Paper Number 27

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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 criteria for classifying firms as systemically important: size (the classic doctrine of too big to let fail) and the four C’s of systemic importance (contagion, concentration, correlation, and conditions); it also discusses the concept of progressive systemic mitigation.


Suggested citation: Thomson, James, 2009. "On Systemically Important Financial Institutions and Progressive Systemic Mitigation," Federal Reserve Bank of Cleveland, Policy Discussion Paper no. 27.

Three-Tiered Proposal on the Drawing Board

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