By entrusting their money to banks, consumers expect that they will receive their dividends regularly and will be able to withdraw the entire amount upon expiration of the agreement. Banks expect the same from borrowers when lending them money. However, this is an ideal situation, which is not always realized in reality. Just as a borrower may be unable to repay the debt to the lender, a bank may fail for a variety of reasons. They range from involvement in risky activities to a domino effect that could bring down the bank if consumers panic in the financial services market. That is why, since 2010, the US government has tightened regulation of market giants, introducing such a concept as Systemically Important Financial Institutions or SIFI.
Which Financial Institutions Belong to the SIFI Category?
The SIFI category includes not only banks but also insurance companies, investment banks, and other financial institutions, which, in the event of a collapse, will cause serious damage to the financial sector and the economy. To prevent such a situation, the government conducts more careful monitoring of these institutions, regular stress tests, requires living wills, etc.
Pros and Cons of Using SIFI Services
On the one hand, clients of banks belonging to the SIFI list feel more protected. On the other hand, when receiving loans, they are subject to much higher requirements. For example, if you need a short-term loan, you can choose the services of a suitable lender from a variety of offers on the Payday Depot platform. In most cases, lenders will not even check your credit history and are ready to cooperate with borrowers with a low credit rating. Banks included in the SIFI list cannot risk their assets by providing them to clients with low credit ratings. Precisely because they belong to the “too big to fail” category, and in the event of non-repayment of funds by a large number of debtors, they will pose a serious threat to all the spheres of social life.
For Which Financial Operations Is It Better to Use SIFI Services?
- If you are looking for a reliable financial provider to save your money, a bank from the SIFI list will be an excellent option.
- If you are aiming for a short-term loan, it is better to consider worthy alternatives so as not to waste time waiting and end up getting rejected. For example, on the Payday Depot platform, you can receive the required amount in your bank account within 24 hours. It is simply unrealistic to dream of such speed when contacting a traditional bank, much less one belonging to the SIFI list.
Controversies Regarding SIFI Regulation
Critics of this policy say that strict regulatory practice in relation to large banks not only does not protect them from collapse but, on the contrary, contributes to it. These banks are forced to spend a lot of money on following all the regulations, drawing up a living will, passing annual stress tests, etc. These expenses become an additional burden for banks and, therefore, only increase their risks.
You can take any position in this dispute. If you believe that greater scrutiny from regulators guarantees the stability of deposits, you will trust your capital to such banks. But keeping in mind the criticism of this approach, do not forget about risk diversification and try to invest your savings in different financial institutions.
