Identifying Vulnerabilities in Systemically-Important Financial Institutions in a Macro-Financial Linkages Framework
During the subprime crisis, governments intervened to stabilize the financial condition of some troubled systemically important financial institutions. Two questions naturally arise: Why do some institutions receive intervention while others not? What are the macro-financial driving forces of the vulnerabilities in the systemically important SIFIs? This column summarizes the results of some recent studies about identifying vulnerabilities in SIFIs. Overall, the existing research suggests that leverage is the most reliable indicator, while several widely used indicators are not very useful in identifying the differences in SIFIs.