A systemically important financial institution, or SIFI, is a bank, insurer, or other financial company large enough and interconnected enough that its failure could spread losses across the broader economy. The term comes out of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, Congress’s response to the 2008 financial crisis and the bailouts that followed. Firms carrying the label are supervised more intensively than ordinary banks: they hold more capital, pass annual stress tests, and file plans explaining how they could be wound down without a taxpayer rescue.
Why the Label Exists
Before 2008, no single regulator was watching the financial system as a whole. Agencies supervised individual banks and markets, but nobody tracked how risk was building across all of them at once.1U.S. Department of the Treasury. About the Financial Stability Oversight Council When Lehman Brothers failed and AIG nearly did, the damage rippled outward because those firms were counterparties to thousands of other institutions. Credit markets froze and the government stepped in with hundreds of billions in emergency support, not to reward the firms involved but because letting them fail looked worse.
Dodd-Frank’s answer was to create the Financial Stability Oversight Council (FSOC) to spot threats early, and to require the largest firms to meet enhanced prudential standards. The logic is straightforward: if a firm is big enough that its collapse would hurt the whole economy, it needs tougher supervision than a community bank.
How a Firm Gets the Designation
There are two separate paths. Banks are scored under an international framework developed by the Basel Committee on Banking Supervision and coordinated by the Financial Stability Board (FSB). Non-bank companies can be designated individually by FSOC.
Global Systemically Important Banks
The G-SIB methodology uses five indicator categories, each weighted equally at 20% of the total score:2Financial Stability Board. 2025 List of Global Systemically Important Banks (G-SIBs)
- Size, measured by total consolidated assets.
- Interconnectedness with other financial institutions through lending, borrowing, and derivatives.
- Substitutability, meaning how easily other firms could step in if the bank stopped providing critical services like payment processing or custody.
- Complexity, including derivative portfolios, illiquid assets, and convoluted legal structures. The FSB noted complexity was the largest contributor to score changes in the 2025 assessment.
- Cross-jurisdictional activity, since operations spanning multiple countries complicate any wind-down.
Banks above the score cutoff are placed into buckets that determine their additional capital requirements. The FSB updates the list every November. The 2025 list includes 29 G-SIBs worldwide.
Non-Bank Designations by FSOC
Dodd-Frank also lets FSOC designate non-bank financial companies — insurers, hedge funds, finance companies — as systemically important, placing them under Federal Reserve supervision. Designation requires a two-thirds vote of the Council, including the Treasury Secretary who chairs it.3eCFR. 12 CFR Part 1310 – Authority to Require Supervision and Regulation of Certain Nonbank Financial Companies The Council weighs leverage, off-balance-sheet exposures, interconnections with major financial firms, importance as a source of credit, and reliance on short-term funding.
In practice, this authority is largely dormant. FSOC has designated only four non-bank companies in the framework’s history, and none of those designations remain in effect. AIG and GE Capital were designated in July 2013, Prudential Financial in September 2013, and MetLife in December 2014. GE Capital’s designation was rescinded in June 2016, AIG’s in September 2017, and Prudential’s in October 2018.4U.S. Department of the Treasury. Designations MetLife successfully challenged its designation in federal court, and the government did not reinstate it. No non-bank firm has been designated in over a decade.
Proposed FSOC guidance issued in 2025 would move further toward an activities-based approach that targets risky practices across the system rather than labeling specific firms. Under that guidance, entity-specific designation would be pursued only if the risk cannot be addressed through the broader approach, a cost-benefit analysis would be required, and the targeted firm would get a chance to address the identified risks before any vote.5U.S. Department of the Treasury. Financial Stability Oversight Council Issues Proposed Guidance on Nonbank Financial Company Designations
Which U.S. Banks Carry the Label
Eight U.S. banking organizations are currently in the Federal Reserve’s G-SIB supervisory program:6Federal Reserve Board. Global Systemically Important Banks
- JPMorgan Chase & Co.
- Bank of America Corporation
- Citigroup Inc.
- The Goldman Sachs Group, Inc.
- Morgan Stanley
- Wells Fargo & Company
- The Bank of New York Mellon Corporation
- State Street Corporation
These eight firms face the most stringent requirements, including the full suite of enhanced prudential standards under Regulations YY and QQ covering capital, liquidity, resolution planning, risk management, internal controls, and stress testing.
What the Designation Actually Requires
The enhanced prudential standards are the regulatory teeth behind the SIFI label. Dodd-Frank originally applied them automatically to every bank holding company with more than $50 billion in assets. The Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 raised that automatic threshold to $250 billion. Banks between $100 billion and $250 billion may still face some enhanced requirements at the Federal Reserve’s discretion, but the full suite now applies automatically only to G-SIBs and firms above $250 billion.7Legal Information Institute. 12 CFR Part 252 – Enhanced Prudential Standards (Regulation YY)
Extra Capital
SIFIs must hold a larger buffer of high-quality capital, primarily common equity, to absorb unexpected losses without becoming insolvent. On top of the baseline capital rules that apply to all banks, G-SIBs face an additional surcharge calculated from their systemic importance score. Under Federal Reserve rules, the surcharge is the higher of two calculation methods and ranges from 1.0% to 3.5% or more of risk-weighted assets depending on the firm’s bucket.8eCFR. 12 CFR 217.403 – GSIB Surcharge JPMorgan Chase faces the highest surcharge among U.S. banks because its scores consistently place it in the top bucket. The surcharge creates a direct financial incentive to simplify operations and shrink the firm’s systemic footprint.
Liquidity
Liquidity requirements make these firms hold enough cash, Treasury securities, and other easily sellable assets to meet obligations during a market crisis without fire sales or emergency central bank lending.
A Dedicated Risk Committee
Bank holding companies with $50 billion or more in total consolidated assets must maintain an independent risk committee of the board of directors. The committee oversees the firm’s risk management framework. It must be chaired by an independent director, include at least one member with experience managing risk at large financial firms, and meet at least quarterly. These firms must also appoint a chief risk officer who reports directly to both the risk committee and the CEO.9eCFR. 12 CFR Part 252 Subpart C – Risk Committee Requirement for Bank Holding Companies
Annual Stress Tests
The Federal Reserve runs annual supervisory stress tests on banks with $100 billion or more in total consolidated assets. In 2026, 32 banks are subject to the test.10Federal Reserve Board. 2026 Stress Test Scenarios Each test projects how a bank would perform under a hypothetical severe recession, estimating losses, revenues, and capital levels across a multi-year scenario with rising unemployment and falling asset prices.11Board of Governors of the Federal Reserve System. 2025 Supervisory Stress Test Methodology – Preface Banks that show insufficient capital under the scenario face restrictions on dividends and share buybacks until they rebuild their buffers, and the results feed directly into each bank’s capital requirements for the following year.
Resolution Plans (“Living Wills”)
Every large banking organization covered by Dodd-Frank must submit a resolution plan to the Federal Reserve and FDIC explaining how it could be wound down in an orderly way under existing bankruptcy laws, without a government bailout.12Federal Reserve Board. Living Wills (or Resolution Plans) G-SIBs file full plans every two years. Category II and III banking organizations file every three years, and smaller covered companies submit abbreviated plans on a three-year cycle.13eCFR. 12 CFR 243.4 – Resolution Plan Required Each plan has a public section the FDIC posts on its website and a confidential section with sensitive operational detail.14FDIC.gov. FDIC and Financial Regulatory Reform – Title I and IDI Resolution Planning
If regulators find a plan not credible, they can require the firm to make structural changes, divest business lines, or take other steps that would make orderly resolution more realistic. The exercise forces firms to confront their complexity in advance rather than leaving regulators to figure it out mid-crisis.
If One Fails: Orderly Liquidation Authority
Title II of Dodd-Frank created the Orderly Liquidation Authority (OLA) as a backstop for situations where a failing financial company’s collapse through normal bankruptcy would threaten financial stability. Under OLA, the FDIC can step in as receiver and manage the wind-down in a controlled process designed to minimize damage to the broader system.15eCFR. 12 CFR Part 380 – Orderly Liquidation Authority OLA has never been used, and the living will process is partly designed to keep it that way by ensuring these firms can be resolved through standard bankruptcy instead.