• A systemically important financial institution (SIFI) is a firm that U.S. regulators determine would pose a serious risk to the economy if it were to collapse.
• This label imposes extra regulatory requirements and increased scrutiny, including strict oversight by the Federal Reserve, higher capital requirements, periodic stress tests, and the need to produce “living wills.”
• Last year, President Donald Trump signed a bill to pare back parts of the Dodd-Frank Act, raising the threshold that determines which companies qualify as a systemically important financial institution (SIFI).
• The changes should see many mid-sized FIs save millions in regulatory compliance costs and give them greater flexibility to expand their businesses.

The great recession was mainly blamed on financial firms taking on too much risk. Regulators recognized that closer scrutiny in the future would be paramount to prevent a repeat, noting that many companies in this industry are deeply ingrained in the functionality of the economy, or, as they put it, too big, complex and interconnected to fail.

The 2010 Dodd-Frank Act, a response to the financial crisis, established the Financial Stability Oversight Council (FSOC), giving it the authority to label banks and other firms systemically important financial institutions (SIFIs).

This label imposes extra regulatory requirements and increased scrutiny. These include strict oversight by the Federal Reserve, higher capital requirements, periodic stress tests, and the need to produce “living wills”—plans to wind up operations without triggering a financial crisis or requiring a bailout.