Systemically important financial institution (SIFI).

In plain English

Designation as a SIFI turns on size, interconnection, complexity, and how easily other firms could do its job, and it brings higher capital requirements, regular stress tests, and a resolution plan. The resolution plan, often called a living will, has to describe how the firm could be wound down without taxpayer support or a market-wide freeze. Global regulators maintain their own list of globally systemic banks, which carry an extra capital surcharge that scales with the score. Non-bank firms such as large insurers can be designated too, and that designation has been contested and reversed in some cases. The label brings costs and, critics argue, an implicit signal that the firm would be rescued.

01Why it matters

These are the institutions whose failure would reach your employer's credit line and your mortgage servicer, so the extra requirements on them are a form of insurance you never buy directly.

02The math, step by step

Say a bank scores high on cross-border activity and complexity and lands in a surcharge bucket requiring 2 percentage points of extra capital. With $500 billion of risk-weighted assets, that is $10 billion of additional common equity it must hold and cannot pay out.

Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.

03What this is NOT

04Receipts

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