Question

a. What is meant by systemically important financial institution?

b. What two solutions to the “too big to fail” issue have been suggested?

Answer 1

A. Systematically important Financial institutions mean all those Financial institutions like banks along with insurance and other Financial institutions which are highly important to an economy and whose failure can trigger an economic crisis so these organisations should be adequately managed because they are often taken for' too big to fail'.

Failure of these systematically important financial institutions can lead to tu crisis in the whole economic because of financial contagion.

(B). Two solutions to too big to fail issue are as follows-

I. Breaking of these larger Financial institutions into a smaller constituent so they can be managed properly.

II. Introduction of the regulation to reduce the overall risk in order to resolve with the crisis of too big to fail.