When it means you are in danger of being systematically important…..being designated a Systematically Important Financial Institution (SIFI) by the FSOC will have very severe and onerous consequences for the firm in question.
There was a time when being important was a good thing, well the same does not apply to being a SIFI. SIFI designated firms will have greater capital adequacy requirements placed upon them, as well increased scrutiny through tougher oversight and reporting requirements on risk management processes, liquidity and credit exposure. What this translates to is greater cost and lowered capability to leverage existing capital to make new money. In competitive terms it means a SIFI firm will find it more difficult to compete with a non-SIFI firm.
There are two ways you can end up being SIFI, the FSOC put you on their list – a subjective assessment – or you fail the 3 stage quantitative test as outlined by the FSOC recently – the headline test in Stage One of the assessment being $50bn in consolidated assets. The other tests in Stage One include exposure to CDS, leverage, derivatives, liabilities and debt exposure.
Based on these criteria it is possible that some of the larger Money Market funds will be classified as SIFI, which means there non-SIFI designated competitor funds will have a competitive edge on them.
A recent Moody’s report indicates up to 100 firms could be classified as being SIFI, including up to 7 of the largest Money Market funds.
