As a result of the worldwide financial crisis which occurred in 2007, an intensive discussion about preventing possible future crisis like that has arisen. One of the key points in these debates is the necessity to protect the economy from negative effects of failing financial institutions.
These can be dramatic what you can see by reflecting the facts of the recent crisis that is characterized by big bank failures and so caused domino effects. Thus it is very important to reduce the so called systemic relevance of financial institutions. But the design of a framework that contains systemic risk effectively is not just a simple task, because you have to consider a couple of factors in view of creating an effective solution.
This paper presents a short overview of the issue of hazard that is caused by systemic relevant institutions (SIFI) and the content of the actual debate by illustrating the costs the institutions cause and the presentation and evaluation of several approaches of economic experts with regard to the topic of reducing systemic relevance. Finally the paper tries to draw a conclusion.
Table of contents
I. Introduction
II. Facing systemic relevance
II.1 Defining systemic relevance
II.2 Defining the leading actors
II.3 Benefits of being systemic relevant
III. Design of an efficient framework to contain systemic risk
III.1 Elements of an efficient framework
III.2 Basel III - A step into the right direction?
III.3 Proposals to reduce the TSTF problem
III.3.1 Quantity reduction based approaches
III.3.2 Prize regulation based approaches
IV Conclusion
V. Appendix
VI. References I
