Systemic financial risk issues in India
Systemic risk thinking ought not to stop at financial firms. Certain non-financial firms are special as well
The 2008 crisis brought a fresh focus upon “systemic risk". Before the crisis, regulators aimed to lower the chances that a financial firm will fail. But that did not ensure the safety of the entire financial system. One element of the problem was that the failure of certain firms had consequences beyond themselves. These were the systemically important financial institutions (SIFIs). Systemic risk management focuses on treating these firms differently in two ways. First, micro-prudential norms for SIFIs must be set in such a way that these firms have lower chances of failure than others. Second, there must be well thought out and special mechanisms for resolution of these firms when they get into distress.